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August 2006 • Volume 11 Number 8
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Member Profile: New York City Transit
This month, Smart Card Talk spoke with Paul Korczak, Assistant Chief Officer for MetroCard Sales Operations for New York City Transit. Mr. Korczak has over twenty years experience in several facets of public transportation, most notably in finance, operations, and business planning. For the past decade, he has focused on all aspects of transit automated fare collection, having had a key role in introducing automated vending of fare media at New York City Transit and in establishing business operations to support acceptance of bank payments for purchase of transit tickets. Currently, he is also the Project Manager for the pilot that demonstrates using a MasterCard PayPass smart card device for direct payment of fare at select turnstiles on New York City Transit’s Lexington Avenue subway line.
1. MTA New York City Transit (NYCT) has launched a pilot that allows riders to use MasterCard PayPass contactless credit and debit cards and fobs to pay for fares at the subway gate. What is the status of the pilot and what are your goals for the initiative? After a successful official launch on July 11, the pilot is well under way at thirty subway stations, principally along NYCT’s busy Lexington Avenue line. Since then, several thousand trips have been paid with “taps” at the 79 subway turnstiles at these stations that are equipped with smart card readers uniquely branded for the pilot. Subway riders are actively using the web site developed for the project (http://www.mastercard.com/subwaytrial) to take advantage of the fare policy options and detailed information on trips and charges to their credit and debit accounts. Access by phone to a customer service center is also available should a rider prefer speaking with a representative about their inquiries. During the six-month long pilot, NYCT and its partners will be monitoring the performance of the system and evaluating customer feedback on the experience of paying directly at the point of entry and on the customer support offered by this new approach to paying transit fares. There is a lot to be learned from this initiative. Perhaps most important is whether transit riders are comfortable using an approach based on banking payments to pay transit fares, supported by the special customer support embodied in the web and customer service center. Another important goal is to see whether the smart card as a technical solution can be married with business rules proposed by NYCT’s business partners that are specific to smart card payment devices and the transit environment for paying fares at the point of entry. The last goal is an important one to understand. Like many other transit agencies, NYCT has accepted magnetic stripe banking cards at its automated vending machines for purchase of its MetroCard fare media for several years. In effect, we’ve acted as what in the banking payments industry is defined as a “merchant,” much like any other retailer that accepts bank cards. Now that banks appear to be moving ahead with expanding their use of smart card devices, we’re interested to see whether we can maintain as much of our traditional “merchant” relationship, while at the same time jointly identifying and testing what steps need to be taken to merge our business and operating requirements with banking payments. We all recognize that transit is a special case with unique challenges. We also recognize that in order to take full advantage of the benefits of being a “merchant,” we need to evaluate carefully how we adapt to the new bank products so that we minimize impact on our mutual customers. As we’ve learned over the years, our transit customers who will be using a bank smart card device to pay fare are coming to our turnstiles with well-established expectations about customer support, their liability in the event of fraudulent use of their bank card, and their access to information about their account. Similarly, they have expectations regarding the experience of purchasing and using fare media for transportation. The challenge is to address these expectations, perhaps in a way that results in a perceived improvement to the customer who uses public transportation and also in benefits to the transit agency.
Perhaps the most notable difference is that the pilot is taking a smart card business and technical solution from one industry, banking, and testing whether it can somehow work in another, transit. Not just in public transit, but in most travel businesses, the practice has been to issue some form of ticket or fare media. While this is still prevalent, there is the possibility of using an account-based instrument as both a means of payment and a credential. Just think of what airlines do with e-tickets. Another difference is the approach to the technology. As fare payment systems have evolved in public transit to date, most tickets issued by transit agencies center on a read/write technology approach. That is, a host of information is written to each piece of fare media when it is purchased and each time it is used to pay fare. By contrast, banks’ cards are only read at the point of sale. The reading of the card stimulates a back office process of authorization and payment. Of course, there are some hurdles to overcome. Transit presents challenges to any approach to fare payment that range from technical issues, like assuring the speed and accuracy of the transaction, to more practical issues like risk management and resolution of customer inquiries. All of these are being tested and examined closely in the pilot.
3. What trends do you see developing in the smart card market and with the new business and technical approach that NYC Transit hopes to capitalize on? Clearly, there is a trend towards greater use of smart cards in the banking sector as well as in other functions, such as secure IDs, across many business sectors. And transit is still a stalwart when it comes to using smart card technology for new systems and upgrades to legacy installations. What is different this time around is that banks appear to be committed to garnering more of the micropayments market sector through smart cards. While not seen as the largest sector in terms of dollars, it’s clear that transit is an important part of the business equation. This has led to a greater interest in and exchange of ideas and facts about public transit business operations from the banking sector. This exchange has yielded more of a focus on the business case and related operating issues as the drivers and measures of success, rather than relying solely on technical criteria. Concurrently, as a result of the focus on a combined business and technical approach, I think there is furthering of the trend towards “account-based” payment arrangements between a transit agency and its patrons. Account-based approaches provide significant opportunities for improvements in customer service. At the same time, these approaches are complex and require more resources to implement and operate than non-account-based approaches. The question becomes one of who owns the account, and how it can best be managed. Leveraging an existing account already established by the customer offers a way of adding convenience and potentially avoiding costs. What’s innovative about the pilot in New York is that it goes one step further by posing the question of how to address the issue of transit-specific fare media. This, too, is a complex issue, one that will be discussed for some time. Traditionally, transit agencies have issued their own, unique fare media that is valid for transportation only on the service of the issuing agency. It remains to be seen whether payment of fare made at the point of entry, or “pre-paid” through an account-based relationship structured around the bank smart card device, obviates the need for transit-specific fare media.
4. What obstacles do you see that must be overcome to capitalize on these opportunities? The bottom-line determining factor is whether the customer sees a benefit to the approach taken in the pilot. It’s really about the whole picture -- “tapping” at the point of entry, the convenience of the approach (no fare media to purchase), the reliability of the payment method, and the customer support available when it comes to resolving inquiries. Of course, there is also the practical matter of the availability of bank smart card devices to transit riders. This, obviously, is something out of the hands of transit agencies, at least for the present. There needs to be widespread distribution of these devices to bank customers in order for transit “merchants,” as well as the much larger market of other merchants, to begin to accept them. Also, non-transit merchants have to be willing to change out their point of sale devices for new, smart card readers. Both seem to be happening, as well-known banks have begun issuing smart cards and national retail chains have installed smart card readers at their points of sale. From a transit perspective, it has certainly been helpful to have the benefit of managing a highly successful, robust automated fare collection system like the MetroCard. That experience, coupled with having been a “merchant,” has expanded our knowledge base and allowed a better understanding of different options. Newcomers to the approach in the pilot could benefit from sharing experiences so that they don't "reinvent the wheel." I think it is important to note that the experience of being a “merchant” in a “non-face-to-face” environment where the card is present is something that is universal and transferable. So while each transit property has its own flavor of operating issues when it comes to banking payments, the tools and techniques to work through the issues are available from many sources.
From a practical standpoint, smart cards need to be implemented for transit in a way that allows direct, tangible benefits to accrue to customers and to the transit agency. Using a smart card for fare payment must be more convenient and easier to use when compared to the prior method of fare payment. The challenge is that the standard for what is an improvement depends on where the transit agency is in the evolution of its fare collection operation. While some agencies already have full-blown automated fare collection systems centered on smart cards, others may be just starting down the road to automation. Still others may have made recent significant investments in custom-built systems that are based on magnetic stripe technology, which works well and is very sustainable. Because of these diverse environments, and therefore customers' diverse expectations and experience, it is difficult to find a universally acceptable definition of what is a true, tangible benefit. From a transit agency perspective, the same situation occurs. The transit agency will look to benefit in terms of efficiencies or increased revenues, whether as a result of greater reliability and accountability, or from the fact that the greater level of service and convenience offered by the smart card solution stimulates increased ridership. Developing a smart card solution that meets these criteria, and still remains cost effective, presents a challenge, especially when an agency’s current fare collection system works well and has many capabilities. There is one other driver that needs to be mentioned: the strong intent on the part of many transit agencies to develop means that would allow customers to travel among different agencies and across various modes of public transportation on a regional, perhaps even national, basis. Many efforts are underway to standardize and, from a customer’s perspective, simplify payment of fares. From a technology perspective, smart cards figure prominently in these efforts. I think there will still be vigorous discussion for yet some time to come on how smart card technology will fold into a customer-friendly, sustainable, and cost-effective business and operating solution.
6. How do you see your involvement in the Alliance and the Transportation Council helping NYC Transit become successful? For me, a key benefit of involvement in the Alliance and in the Transportation Council, in particular, is the opportunity to participate in a forum that invites dialogue based on a much broader range of views and approaches. The Alliance has members representing all aspects of the smart card industry, as well as a diverse mix of businesses that sees opportunities in adopting smart card technology. Through the collective experience of these members, transit has access to best practices in other industries and, more important, to lessons learned as members have implemented smart card technology to satisfy a variety of business needs. The Transportation Council, in particular, has proven to be a level, vendor-agnostic playing field where all stakeholders have an equal voice in working through practical issues.
7. In your role as Chair of the Smart Card Alliance Transportation Council, what do you see are primary goals for the Council for the next year? With greater use of smart cards across many different business sectors, it seems to me that that the Transportation Council should have two main goals. One is to assure that it remains an open, vendor-agnostic forum for the exchange of accurate information about smart card implementations in all business sectors, not just transportation. In today’s highly competitive business environment, new ideas that could be useful to transit agencies may come from unexpected sources. A forum such as the Transportation Council can jump start innovative solutions to business needs. A second goal is to grow awareness of and participation in the Transportation Council. I think one way this can be accomplished is through continuing our efforts to research and publish reports on topics important to public transit. I think this means addressing issues that have a practical bearing on service delivery and business operations. It’s important to work towards making the results of our efforts something that an agency can actually use or benefit from in some direct way, whether it is a practical application, greater awareness of best industry practices, or perhaps opportunities for transferring a business solution across industry lines.
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Since the late 1990s, transit agencies worldwide have been deploying contactless smart card-based automatic fare collection (AFC) systems. These systems use a contactless smart card as the fare medium, with financial credit, debit, and prepaid cards used to purchase the fare media or reload or add value to the contactless fare card at a ticket vending machine, kiosk, Web site, or other location. The card is then used to pay the fare when boarding a bus or entering a gate. Two pilots are now underway in New York City and Utah that are evaluating a new approach -- accepting standard financial payments industry-issued contactless credit and debit cards for fare payment directly at the point of entry.
2. How is the smart card pilot at MTA New York City Transit different from other approaches? 
5. What do you see are the key factors driving smart card technology in the transit market? 