Multiagency Electronic Fare Payment Systems (2017)

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8 The transit industry is undergoing a disruptive change in how fare payment systems are struc- tured. Although transit providers still accept cash, as banking and commerce trends are showing (Federal Reserve 2014), currency is becoming scarcer, as more people are using electronic payment media (banking cards or mobile payment apps) to pay for services. The transition of the industry from cash and tokens to magnetic stripe cards occurred relatively quickly between the 1980s and 1990s. Since the mid-1990s, the move to newer technologies has occurred mainly in large metro- politan areas. The trends discussed in TCRP research reports since 1996 have emerged slowly; and some of these technologies are just now being deployed. Moreover, many of the trends predicted in the TCRP reports from 1996 to 2006 have only been deployed for institutional customers or as short- term pilots. HISTORY OF MULTIAGENCY ELECTRONIC FARE PAYMENT IN THE LITERATURE The most complete research in the area of multiagency EFPS are the studies published by TCRP between 1996 and 2015 (see text box—List of Related TCRP Studies). Over the last 20 years, these studies explored fare system trends and emerging technologies. TCRP Report 10: Fare Policies, Structures, and Technologies identified electronic media, such as smart cards, as the future of fare payment technologies (Fleishman et al. 1996). The report also presented a framework for transit agencies and their partners to develop a coordinated, intermodal pricing strategy in which multi- purpose transit fare media are an integral part of, and facilitate the implementation of, flexible tran- sit fare policies and coordinated pricing structures. The report foresaw that the “advancement in the design and capabilities of fare payment media and equipment” would support changes to fare policies and structures, reduce fraud, and improve revenue collection. However, the study went on to note that the smart card adoption was not inevitable. Expanding capabilities of the smart card were reviewed in TCRP Report 32: Multipurpose Transit Payment Media, which examined the potential for introducing multipurpose payment smart cards that can be used to purchase transit services from multiple operators, and, pos- sibly, other goods and services (e.g., parking and retail products). The report described smart cards—“contact, contactless, and combi- cards” and their use for stored value. It also discussed how electronic media were used in a “ ‘closed’ transit-only environment (i.e., the transit agency, or group of agencies, issues and accepts the card) or a broader ‘open’ environment (i.e., the transit agency accepts a card issued by one or more non-transit entities, such as a bank or a university)” (Fleishman et al. 1998). TCRP Report 32 provides a roadmap for financial, policy, and tech- nical interoperability, identifying five key issues and parameters in multipurpose programs: • Institutional and financial: Who are the participants in the pro- gram? How is it organized and operated? What are the expected chapter two INDUSTRY OVERVIEW List of Related TCRP Studies 2015 TCRP Report 177: Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation 2014 Report 173: Improving Transit Integration among Multiple Providers 2006 TCRP Report 115: Smartcard Interoperability Issues for the Transit Industry 2003 TCRP Report 94: Fare Policies, Structures and Technologies: Updates TCRP Reports 10 and 32 1998 TCRP Report 32: Multipurpose Transit Payment Media 1996 TCRP Report 10: Fare Policies, Structures, and Technologies

9 costs and revenues for each participant? What is the nature of financial arrangements among the participants? • Legal and regulatory: What state and federal legal and regulatory requirements or restrictions must be addressed? • Operational and administrative: How are the different applications on a card priced, and how are cards distributed and reloaded? • Technological: What type of card will form the basis for the program, what are the design requirements, and how will the new technology be integrated into the existing system? • Customer-related: To what extent will customers participate in the program, and how will their concerns be addressed? Many U.S. multipurpose deployment examples identified in the report are no longer in operation. The technologies, institutional arrangements, and operational constraints were not mature enough to support the multipurpose frameworks. TCRP Report 94: Fare Policies, Structures and Technologies: Update (Multisystems Inc. et al. 2003) not only served to update the two previous TCRP reports, but also showed how electronic fare media use within transit was maturing. The study identified, described, and evaluated key fare structures, policies, and technologies that were adopted by transit agencies after publication of TCRP Report 10. Reported agency benefits focused on the payment system’s impact on customers, operations management, and effective and equitable fare integration. The report included infor- mation on different fare structures, policy-making procedures, and ongoing efforts to implement fare technology. Many of the agencies described in the case studies from TCRP Reports 10, 32, and 94, and some of the agencies that currently support smart cards, were either short-lived or are currently constrained to a limited customer base (Multisystems Inc. et al. 2003). TCRP Report 115: Smartcard Interoperability Issues for the Transit Industry, published in 2006, detailed technical and institutional models related to a multimodal/multiagency smart card solution. The research also identified procurement, deployment, and organizational barriers and oppor- tunities for card-based fare payment systems. Although the study tried to promote specifica- tions for interfaces, card formats, reader functionality, and other requirements that would ensure interoperability, most implementations today are still proprietary. The report identified smart card and equipment interoperability as the major challenge to integration, concluding that the lack of open standards “inhibit[s] any attempt to implement regional interoperability” (Acumen Building Enterprise 2006). As seen in Figure 1, the report’s timeline lays out the deployment of electronic fare payment systems from the first regional smart card deployment in North America to the most recent ones (see Appendix C1: Smart Card Timeline Table) for detailed information on each smart card program). Although TCRP studies predicted how new smart card technologies could be deployed, few regions have actually deployed regional, multimodal, multipurpose smart card systems. Many of the early deployments took six to 10 years (based on reviews of TCRP Reports 10, 32, 94, and 177, and dis- cussion with staff at the San Francisco Bay Metropolitan Transportation Commission (MTC) and the Central Puget Sound Regional Transit Authority serving the Seattle area (Sound Transit). By 2015, only 24 regions in the United States and Canada had deployed or were in the process of developing multimodal, multiagency fare payment systems. Some are still in the process of developing their first system, two regions have deployed a second-generation system, and several more are currently working on their second-generation system. MULTIAGENCY ELECTRONIC FARE PAYMENT SYSTEM BENEFITS AND BUSINESS CASE A multiagency EFPS is defined as a system in which one or more agencies share payment processing, adopt governance rules (including fare/transfer policies, settlement, and cost allocations), and deploy common electronic fare media and equipment technologies to support the diversity of modes and

10 2002 FIGURE 1 Multiagency electronic fare payment system and smart card deployment timeline. Source: Paula Okunieff, graphics produced by Sharp & Co.

11 fare structures. In TCRP Report 10, the numerous benefits of adopting electronic payment technologies were clearly articulated: • Improved flexibility—the ability to modify fare structures. • Improved revenue accountability and security—moving away from cash collection, revenue is settled electronically. • Reduced fare abuse—reduction in fraud and counterfeiting of paper fare products such as tickets. • Improved ridership data—automated collection of revenue and ridership information including rider types. • Reduced transit operator and rider interaction—as a result of the automation of fare collection and validation in operational environment. • Regional fare integration—allows use of single fare media and appropriate equipment on multiple modes and agencies, whereas fare structures and products can be independent. • Multiple use of electronic purse—use of stored value for purchase of non-transit goods and services. • Post-payment and employer billing—capture of transaction data for billing (post payment for demand responsive services, for example). In TCRP Report 32, the multipurpose program justification includes: • Seamless regional transit travel; • Reduced fare collection costs; • Additional revenues; • Improved customer convenience; • An expanded market base for transit (e.g., by accepting commercial payment media or by increasing employer participation) and increased ridership (e.g., through the institution of loyalty tie-ins with merchants or frequent rider bonuses); • Improved data collection and reporting capabilities; • Improved equity and timeliness of the reconciliation and distribution of revenues collected in a multioperator system; • Improved ability to modify fare policies and structures (e.g., to better target specific markets); and • Gets out of the “payments and settlements” business (i.e., uses the capabilities of financial institutions). According to the Los Angeles County Metropolitan Transportation Authority’s audit report, the Transit Access Pass (TAP) program has achieved its business case (Bazilio Cobb Associates 2013). Some of the key findings were that TAP: • Reduced the level of fraud, forgery, and fare evasion. • Reduced the amount of time it takes for passengers to pay their fare, and the related time it takes to load passengers at each bus stop. • Positively impacted the amount and quality of [performance] information available to transit operators. • Produced substantial benefits to transit riders and customer throughout the region. • Reduced the cost of fare media, distribution, collection, and counting. • Substantial progress . . . toward regional interoperability of TAP. • Overcame a major obstacle to integration through improved communications about their capability for clearing, settlement, and distribution process for actual fare revenues among Metro, municipal operators, and regional partners. In most respects, the multiagency EFPS have achieved their initial objectives, reducing fraud, increasing data collection, reducing cash handling, making payment more seamless and convenient for customers, and integrating multiple operators. However, as stated by TCRP Report 115, most are proprietary and so are difficult to modify or expand. The report identifies smart card technol- ogy as the major challenge to deploying and expanding the geographic and institutional boundar- ies of a multiagency EFPS: The proprietary nature of the smart cards and reader equipment poses

12 problems and increases costs of integration, and “may even prevent post-deployment regional- interoperability efforts.” NEXT GENERATION MULTIAGENCY ELECTRONIC FARE PAYMENT SYSTEMS Next-generation payment systems are developed using open architecture and open speci- fications. The systems are less dependent on a smart card, instead relying on the “back office” where the customer’s account, payment method, stored value, profile, and pref- erences are stored. The card may be replaced by open specification media such as contactless bank cards (licensed specifications), quick response (QR) codes, mobile devices, or fob/wearables using near field communications (NFC) to communicate a secure token or identification that links to the customer account. As new mobile and communications technologies improve, the account-based payment framework becomes more efficient in providing payment services for transit. Since 2006, as noted in TCRP 117: Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation, new innovations in the form of mobile wallet, real-time bank card transaction processing, and account-based architectures are changing the way multiagency transit providers are envisioning their fare payment systems (Wallischeck et al. 2015). Customer choices and expectations are driving the adoption of mobile pay- ments (Tavilla 2015), consumer payment instruments (such as credit, debit and prepaid cards, and mobile wallets), and integrated payment options for non-traditional mobility ser- vices (Wallischeck et al. 2015). The first mobile ticketing app deployed in the United States was in 2012 (see Figure 2); since then, more than 21 agencies have deployed the technology, and dozens have implemented short-term pilots (not included in Figure 2). The details of the deployments are included in Table C2: Mobile Fare App Timeline Table. There are several architectures that are based on the account-based framework, including mobile ticketing, mobile fares, open payment, and branded card account-based systems. These models are discussed in chapter six. Their success has been demonstrated by several pilots and deployments. TCRP Report 177 and Smart Card Alliance Open Payments White Paper (SCA 2011) discuss some of the early pilots for open payment and account-based systems, including the two implemented by New York City Transit’s Metropolitan Transit Authority (MTA) in 2006 and 2010. The 2010 demonstration also included Port Authority Trans Hudson (PATH) and New Jersey Transit (NJ Transit). Utah Transit Authority (UTA) was the first agency to adopt an open payment system with a third-party account back office that included several modes. CTA implemented the first multimodal, multi agency system, the Ventra Program. A detailed case example of this system is included in chapter six. The number of mobile ticket app deployments in just four years is almost equal to the number of multiagency EFPS deployments over 25 years. The total number of app deployments since 2015 equals the number deployed in all of the previous years. The download rate by consumers for Chicago was more than 360,000 in the first four months after its release (M. Gwinn, Ventra Program Manager, personal communication, Mar. 2016). This type of EFPS will continue to grow, as observed by Tavilla (2015) in a report by the Boston Federal Reserve. SURVEY RESPONDENTS MULTIMODAL CHARACTERISTICS Survey respondents covered a wide range of transit modes. Most of the multiagency EFPS programs include mainly traditional transit services, and eight programs include a non-traditional mobility provider. Since the survey was first administered, the number of non-traditional partners has increased, based on numerous reports in the press. FIGURE 2 Mobile fare app timeline. Source: Paula Okunieff, graphic by Sharp & Co.

13 Traditional Transit Modes Based on survey results, respondents support a wide variety of modes, as shown in Figure 3. The majority of the fare payment systems that responded to the survey support local (95%) and commuter (77%) bus services. Half the respondents’ fare payment programs support bus rapid transit. Approximately half the respondents support rail systems, including commuter rail, light rail, or subway services. Many of the systems operate on ADA paratransit services. Fewer operate on ferries, vans, or ride pools. There are a few systems that operate trams, streetcars, and water taxi services. Analysis of the data shows the following about multiagency EFPS programs (see Figure 3 and Table 1): • All have some bus mode (local, express/premium/BRT); • Majority support four or more modes (average = 4.5; median = 4); and • Many include ADA paratransit (45%). The details of the number of modes by multiagency EFPS are shown in Table 2. 95.5%, 21 77.3%, 17 50%, 11 45.5%, 10 63.6%, 14 40.9%, 9 9.1%, 2 4.6%, 1 45.5%, 10 13.6%, 3 0 5 10 15 20 25 FIGURE 3 Survey respondent mode types supported in a multiagency EFPS (labels on chart indicate percentage and number of responses). No. Modes No. Fare Payment Program % Total 1 2 9 2 1 5 3 2 9 4 7 32 5 3 14 6 4 18 7 2 9 8 1 5 Source: Data from survey responses, native Word table. TABLE 1 NUMBER OF MODES IN EACH MULTIAGENCY EFPS

14 Non-Traditional Partners Included in Fare System Survey respondents were asked whether they integrate the multiagency EFPS with multiple program elements, specifically non-traditional mobility services partners such as parking, electronic fee col- lection for toll roads and bridges; or emerging on-demand partners such as bike-sharing, ridesharing, ridesourcing, or other “disruptive” mobility service providers. Eight multiagency EFPS programs reported their customers can use fare media with non-traditional partners. Of the eight, four identified a parking vendor as the partner service. Since the questionnaire was distributed, several organizations have implemented programs that allow their customers to use their fare media to accrue benefits or purchase services. Chapter six: Account-Based Systems includes information on some of these partner- ships, challenges, and approaches. Next-generation systems are characterized by open architecture, open payment, and open specifi- cations. The systems do not depend on smart cards storing all the transaction information; rather they rely on the “back office” where the customer’s account, travel and transaction histories, payment methods, stored value, profile, and preferences are stored. The card is replaced by open specification media such as contactless bank cards (licensed specifications), QR codes, and mobile ticketing apps that work on mobile devices, fobs, and wearable NFC devices to communicate a secure token or Respondent Bus Premium Bus BRT Commuter Rail Light Rail Heavy Rail/ Subway Ferry Vanpool/ Rideshare ADA Paratransit Other No. Modes in the EFPS No. Agency in EFPS Breeze Card X X X X 4 BusPlus+ X 1 2 CapMetro X X X X 4 CharmCard X X X X X X 6 Clipper X X X X X X Cable car 7 ConnectCard (PA) X X X X 4 6 Easy Card X X X X X X 6 2 FarePay X X X X X 5 Gateway X X X X 4 2 GOPass X X X X X 5 3 Go-To X X X X 4 6 Hop Fastpass X X X X 4 LA TAP X X X X X X 6 24 M-Card (Milwaukee) X 1 Metro Q X X X X 4 MetroCard X X X X Aerial tram 5 8 ORCA X X X X X X Street car and water taxi 8 7 PRESTO X X X X X X X 7 11 SmarTrip X X X 3 9 Star Card X X X 3 Ventra X X 2 3 Source: Data from survey responses, inserted as native Word table. TABLE 2 SURVEY RESPONSE DETAILS OF MULTIMODE, MULTIAGENCY EFPS

15 identification that links to the customer account. The fare calculations and transactions are processed in the back office, thereby reducing reliance on field equipment. Customer choices and expectations are driving the adoption of mobile payments (Tavilla 2016) and consumer payment instruments such as credit, debit, prepaid cards, and mobile wallets. For example, in just four years since the first mobile ticketing app, more than 30 agencies have deployed or will deploy apps by the end of 2016. Moreover, the migration of media to customer- preferred alternatives supports integration with non-traditional mobility services as discussed in chapter six.