Does Apple Pay Growth Signal Contactless Transit Boost?

Retail Payments Cozy Up To Mass Transit

A certain amount of intellectual satisfaction — irony, perhaps — came from the conference call Wednesday (July 31) for Apple’s latest earnings report. In it, CEO Tim Cook credited much of Apple Pay’s recent growth to its increasing use in mass transit.

“Apple Pay is now live in 24 markets worldwide with over 4,900 bank partners, and we look forward to adding Germany later this year,” he said, adding that recent retail deals involving eBay, CVS and 7-Eleven promise to make the payments tool attractive to more consumers. “Transit is another important area of growth and Apple Pay can be used with iPhone and Apple Watch to quickly and conveniently ride public transit in 12 metropolitan areas.”

Cook certainly does his best to generate excitement about Apple Pay, putting its transactions up against PayPal’s, a recent comparison that was not exactly, uh, apples to apples. But there is little question that transit is important to Apple Pay — and that transit, in general, is becoming friendlier to contactless and mobile payments.

Visit a major U.S. city and ride the subway or an elevated train, and you might spot rust older than Apple is as a company. OK, that might be an exaggeration. But this certainly is not, and provides the odd satisfaction mentioned above: transit systems built, or still based upon, 19th-century technology could help bring about growth in digital payments.

Contactless Visions

Were one to offer that statement even five years ago, the skepticism given in response may well have produced a measurable chill in the air.

Transit officials and mass transit advocates, backed by the obviously self-interested case studies and enthusiasm of contactless payment providers, could talk in near-utopian terms about the benefits of swapping out magnetic-stripe fare cards with open- or even closed-loop payment systems that would also enable general retail transactions — perhaps at the coffee shops and other small vendors that congregate near transit stops. Transit agencies would save money because of lower operating costs, and transit systems would have a new way of attracting young urban dwellers predisposed to contactless and mobile.

As well, lines for trains and buses would acquire a refreshing speed efficiency. Contactless fares would reduce all those moments of existential dread that come from standing in air so frigid that Jack London, the tough guy writer of the Alaskan gold rush, would have run home to his mother for soup and his blankie (Hello, Chicago!), or the emotional deflation that results from trying to figure out the molecular origins of the morning’s particular platform odor (We still love you, New York City).

Contactless Reality

But the role that transit is playing in Apple Pay’s growth does indeed reflect how contactless payments are finally finding homes in more U.S. transit systems. There exists scant solid evidence that this trend is producing significant retail revenue beyond fares, but there is little doubt that contactless backers are betting that transit will significantly promote mobile, contactless payments in the years to come.

“Contactless as a way to pay in the United States hasn't gained much traction so far,” reads one recent, and common, observation. “Yet the payment method might finally get the jolt it needs to go mainstream. Nationwide, transit agencies, with their vast populations of riders, are in the process of upgrading or planning to revamp their fare collection systems with contactless technology that will allow commuters to pay for rides in real time with contactless bank-issued credit and debit cards.”

Let’s just take one example, that of New York City, which provides a strong and recent example of the promise and pitfalls of tying transit to contactless payment technology. The region’s Metropolitan Transit Authority plans to end the mag-stripe MetroCard in 2022 in favor of contactless payment technology that enables riders to use phones or chip cards to get on subways and busses.

“The basic philosophy of open payments is this basic notion that customers should not be forced to change the money they already have in their regular accounts to a special form of money for transportation,” said Will Judge, vice president of urban mobility for Mastercard, when previously discussing the concept. “It’s a terribly inefficient way to ride.”

Judge came to Mastercard from London, whose own contactless fare system is considered all-but holy by proponents of such transit technology. He can not only discuss the most recent fare technology but give the history of transit fare payment.

Cash Hassles

For instance, he told PYMNTS that in the earliest days of public transport, when users paid with cash directly, public transportation systems lost a tremendous amount of revenue to bus drivers pocketing coins. Tokens, tickets and transfer slips emerged as a solution to that problem, but created in its place a very complicated system of transport payment for customers to navigate — and for transit agencies to manage.

Efficient management, in fact, is a main factor that payment providers bring up when pitching the benefits of contactless fares. Visa, which launched its Visa Global Transit Solutions business unit late last year, said in its 2017 “Cashless Cities” report that on average, transit systems spend 14.5 cents of every physical dollar collected — that compares to 4.2 cents for every “digital” dollar. Reduced costs are found in such areas as reconciliation, theft and other “leakages,” and the time and expense of physically transporting and depositing cash.

But contactless comes with its own controversies. What about low-income consumers who depend on trains and busses but do not have the proper smartphones or chip cards? For the MTA’s part, it has promised that it will also offer an option to fares with cash — though some question whether the agency will effectively communicate the availability of that option.

Chicago View

Transit is a supremely complicated endeavor even when kept simple — and changing over a fare system, and bringing in other participants to do it, can tax the bureaucratic flexibility of any agency. An example of that comes from Chicago (honestly, it’s an all-around fine city whenever the air doesn’t feel like frozen razors slicing open your skin), where three transit agencies serve the city and its vast area of suburbs.

After years of work — rife with political tensions and funding battles, as befits the entrenched interests that govern the Chicago area — the contactless Ventra card is being integrated, “to some extent,” into all three agencies, according to a report this week from Streetsblog. (The card originated with the Chicago Transit Authority, by far the largest transit provider in the region, the agency that operates those famous L trains.)

That said, much work remains in making sure Ventra can be used for “other modes such as paratransit, bike-share, and even station parking,” said the report, which concerned a forum that brought together the region’s main transit heads.

Now, contactless fare payments face a new challenge: the rise of ride-hailing services that threaten to dampen mass transit ridership growth. “We have to find a way to coexist,” said CTA president Dorval Carter at the forum, adding that when the ‘L’ system melts down, Uber and Lyft “aren’t able to pick up the slack because they don’t have the capacity of rail cars, and a swarm of ride-hailing vehicles results in gridlock.”

That said, one can reasonably have an optimistic — or cautiously optimistic — view of contactless fare payments. At the least, it’s hard to ignore how Apple Pay, so far, seems to be relying on transit for growth, and how payment providers continue to push contactless for trains and busses.



New forms of alternative credit and point-of-sale (POS) lending options like ‘buy now, pay later’ (BNPL) leverage the growing influence of payments choice on customer loyalty. Nearly 60 percent of consumers say such digital options now influence where and how they shop—especially touchless payments and robust, well-crafted ecommerce checkouts—so, merchants have a clear mandate: understand what has changed and adjust accordingly. Join PYMNTS CEO Karen Webster together with PayPal’s Greg Lisiewski, BigCommerce’s Mark Rosales, and Adore Me’s Camille Kress as they spotlight key findings from the new PYMNTS-PayPal study, “How We Shop” and map out faster, better pathways to a stronger recovery.