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Co-Branded Multi-Application Contactless Cards for Transit and Financial Payment

The mass transit and financial payment card communities have a common goal: improving the customer experience with cost-effective products and services that offer increased convenience. To help reach this goal, both communities are embracing the use of contactless smart card technology to create new value propositions and reduce operating costs. By using technology based upon common physical standards, the two communities are creating opportunities for collaboration and partnership.

The Smart Card Alliance white paper “Transit and Contactless Financial Payments: New Opportunities for Collaboration and Convergence" presented one approach to mass transit and financial payment convergence. The approach is based on direct acceptance of American Express, Discover, MasterCard and Visa contactless payment products at the point of transit payment/boarding, with the paper discussing some of the issues and challenges involved in implementing this approach.

This article describes an approach that leverages co-branded card marketing programs and the multi-application capabilities provided by smart card technology to create a payment card that can be used for both transit and financial payment.

Currently, five types of contactless payment systems are used or contemplated for use by mass transit agencies. They are:

• Traditional fare payment systems that incorporate a stored value model. These systems (often referred to as transit applications) use contactless smart cards to carry a data file that is read and updated by readers on buses, fare gates, and platform ticket validators. The data file includes all of the information about the electronic token or pass purchased by the customer that is required for the reader to calculate transaction-specific charges. In most instances, real-time connection to the back office system has not been provided for normal fare payment operations, but instead periodic updates occur throughout the day. To date, implementations throughout the world have used this model, including U.S. transit systems in Washington, D.C.; Baltimore; San Francisco; Oakland; Los Angeles; Chicago; San Diego; Seattle; Minneapolis; Houston; Boston; Philadelphia; Atlanta; and the New York–New Jersey area.
• Traditional payment card industry systems that use existing financial networks to process transactions and load value onto traditional fare payment cards. These systems typically use standard magnetic stripe credit and debit cards, although contactless technology is now being introduced by a variety of retailers (such as quick service restaurants) that generally process small transaction values. Transit agency devices such as ticket vending machines and point-of-sale (POS) systems are simply merchant terminals that process fare payment transactions just as they would any other retail transaction. It is common for most medium and large transit agencies in the United States to accept credit and debit card payment for some or all fare products sold.
• Enhanced payment card industry systems that incorporate an intermediate back office step. This step calculates the correct fare before the transaction is processed through traditional financial networks. These systems sometimes aggregate transactions to reduce transaction fees. An example of this model is the New York City Transit pilot program, which accepts contactless credit and debit transactions for paying subway fares. The Utah Transit Authority has conducted a pilot program, which accepted contactless credit and debit transactions for paying bus fares, and is now launching a full system bus/rail deployment using this approach.
• Basic combined systems that use contactless media. With this system, the contactless payment media carry two types of data files. One is the transit application data file used in traditional fare payment systems. The other is the credit/debit cardholder information needed to process transactions using traditional financial payment card industry systems. The two payment systems are not integrated in any way at the card level. The transit application is used to pay for transit fares; the credit/debit card application is used for other retail purchases. Examples of this model are the London Oyster/Barclaycard and the Taipei EASYCARD.
• Enhanced combined systems that give customers a choice of fare payment methods. Methods include the contactless fare card used in traditional fare payment systems, the multi-application card used in basic combined systems, and the standard credit or debit card used in traditional financial payment card industry systems.

The Basic Combined Model

This article focuses on and defines the basic combined system as one that accepts both co-branded, multi-application payment cards and transit-issued smart cards. In this model, American Express, Discover Network, MasterCard or Visa branded contactless financial payment cards would not be accepted at the point of fare payment. Contactless financial payment cards would be used at online devices to purchase fare products to be loaded onto bank-issued multi-application cards and transit-issued contactless smart cards.

Basic combined systems incorporate three operating principles:

1. The multi-application card carries a transit data file and a traditional credit/debit card data file.
2. The contactless credit/debit payment application is honored at conventional retail POS terminals but not at the point of transit access.
3. The transit data file is processed by the transit terminal as though it were a transit-issued fare payment card.

Smart cards support discrete data files and can control access to them. A smart financial payment card can support both discrete credit or debit payment functionality and a file carrying the transit application that conforms to the requirements of legacy or newly deployed transit fare payment systems.

Use of contactless smart cards in transit will continue to grow, in particular, where transit agencies are either implementing traditional contactless fare payment systems or teaming with financial institutions to expand consumer use of bank debit or credit cards to pay for daily commutes. In the short term, contactless financial payment cards can co-exist with traditional fare payment systems. By working with financial institutions to issue a co-branded multi-application transit/financial contactless payment card, transit agency riders can carry a single card that includes the discrete transit data file and that can also be used for financial transactions. This type of system provides one approach that supports both transitional and long-term strategies for transit and financial payment industry collaboration.

Three successful large-scale overseas implementations of co-branded multi-application contactless payment cards demonstrate the viability of the model described in this white paper. Financial payment card issuers in London, England, and Taiwan have issued hundreds of thousands of cards that perform fare payment transactions. In these implementations, the transit application file enables fare collection devices to perform card-based transactions while the financial credit/debit payment functions allow for conventional contactless credit/debit payment capabilities at the retail POS.

All stakeholders in transit and financial payment value chain may benefit from a co-branded multi-application transit/financial payment card.

• The transit rider sees improved convenience and ease of use by carrying a single card capable of both transit and retail financial payment.
• Transit systems operating a traditional fare payment system using contactless technology can accept such cards with little change to current software or operating models. The implementation can result in both cost savings and new revenue opportunities.
• Transit systems maintain the flexibility of the full gamut of fare policies and can use existing patron feedback and enforcement features and practices.
• The model leverages the current financial infrastructure, with changes primarily required in the personalization and customer service processes.
• Current customer service centers can be used, with the on-card data file assisting customer service who may not have access to an online terminal.
• Combined transit/financial payment cards can be rolled out quickly throughout the transit system without the need to go through lengthy development and testing cycles.

While all stakeholders can benefit, and technical implementation is straightforward, implementation of the co-branded, multi-application transit/financial payment model in the United States will depend on the development of business partnerships that drive value for both financial payment card issuers and transit agencies. Key acceptance factors for both transit agencies and financial payment card issuers include:

• The rate at which financial payment card issuers convert credit/debit cards from magnetic to contactless technology.
• The geographic fit between banks making such conversions and the presence of a contactless transit infrastructure.
• The maturity of a given transit operator's contactless fare payment card program and the technology used in the implementation
• The willingness of an issuer or its personalization bureau to establish the capabilities and processes that are unique (while manageable) to the multi-application card.
• The presence of a positive business case for the financial issuer to include transit capability on a credit/debit card and provide support in the back office. Business case variables include:
  • The extent to which the financial issuer's card base has been converted in a region.
  • The demographics of the region and the transit agency's ridership base.
  • The relative market share of the issuer within a region that has a contactless transit infrastructure in place.

Currently, traditional fare payment systems are the dominant contactless smart card systems being implemented in transit, with advanced payment card industry systems showing promise. This article has described the implementation of the basic combined system, which provides both the proven benefits of traditional fare payment systems and the advantages of traditional financial payment card industry systems.

However, transit agencies should recognize that technology continues to evolve. Implementing any contactless technology based system that is available today will allow for a future migration to more advanced or sophisticated payment models. Through system strategies that support multiple media types, transit agencies can continue to support conventional fare payment practices while expanding their systems to accept one or more types of contactless financial payment, including standard contactless credit or debit cards, co-branded multi-application contactless payment cards carrying a discrete transit data file, transit-issued contactless smart cards, and cards or objects issued by non-transit issuers.

In short, every transit agency, big or small, should initiate the steps to implement a contactless fare payment system, if they have not done so already. As found by the many transit agencies who have already implemented contactless fare payment systems, contactless technology delivers substantial benefits for both transit agencies and their patrons.

About this Article

This article is an extract from the white paper, "Co-Branded Multi-Application Contactless Cards for Transit and Financial Payment," developed by the Transportation Council and published in March 2008. The full white paper is available on the Smart Card Alliance web site at http://www.smartcardalliance.org.

About the Transportation Council

The Smart Card Alliance Transportation Council is focused on promoting the adoption of interoperable contactless smart card payment systems for transit and other transportation services. Formed in association with the American Public Transportation Association (APTA), the Council is engaged in projects that support applications of smart card use. The overall goal of the Transportation Council is to help accelerate the deployment of standards-based smart card payment programs within the transportation industry.

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