Amex Says Transit System Payments Are Ripe for an Open-Loop Overhaul

Contactless payments are transforming any number of sectors and verticals, including mass transit across municipalities and the world.

In an interview with PYMNTS, Elizabeth Karl, vice president and global head, payments consulting at American Express, noted that the pandemic has spurred demand by consumers for touchless, more hygienic payment options.

To get there, she said transit providers are moving beyond the confines of closed-loop payment systems, tied to prepaid options that decrease over time as riders swipe cards or queue at turnstiles. More modern options include payments connected to credit and debit instruments, to EMV and NFC.

As economies continue to reopen around the globe, transit operators are poised to more fully embrace an overhaul of their payment and back-office systems — but there’s also a bit of reticence in place. Roughly 17% of operators will still have legacy systems operating as they tackle upgrades.

According to studies, 43% of transit executives believe it will be challenging to deploy new ticketing technology or solutions. Of course, many of these systems have been around for decades — the New York City Subway, incidentally, traces its genesis to 1904.

Karl said transit agencies could do several things to overcome implementation challenges more easily in their drive toward embracing new ticketing solutions.

First thing’s first: Transit agencies should identify and engage partners within the ecosystem, including integrators, payment processors and payment networks — especially operators who have already successfully launched open-loop payments.

Related: Contactless Payments Could Outlive COVID-19

Working Around the Challenges

“Those operators may have the know-how to work around the challenges and the complexities of moving to new ticketing solutions and doing system upgrades,” Karl told PYMNTS.

She also noted that past experiences of agencies around the globe, upon launching open-loop payments, show that embarking on pilot projects — rather than undertaking full-scale rollouts — can be an optimal strategy.

The benefits of a pilot launch, she said, are that operators can test new technology on a small audience, with the opportunity to collect and gather feedback and refine those solutions before moving to the full-scale rollout.

Additionally, the investment in open-loop payments can be an important future-proof new project, serving as the beginning of the multimodal mobility solution for all things transit across parking, charging and transporting.

A fully-integrated transit solution enables transit agencies to partner with other agencies to add additional routes into new locations and create unified ticketing platforms that can be extended across a city, a state or even a country.

The operational advantages of moving to an open-loop system, she said, include moving away from proprietary payment systems — eliminating the high costs related to processing paper, tickets and cash.

“For the riders,” she said, “this translates into greater speed moving through the turnstiles. It means shorter lines at the ticketing counter and at the kiosks.”

Of course, security is always top of mind, said Karl. Among the advantages of moving to open loop is the ability to move to a more secure transaction. It’s a digitized transaction, said Karl, reliant on EMV technology.

Looking ahead, she said that as consumers move away from cash, she expects that they will also continue to demand more contactless payments — and demand, too, that transit agencies offer those contactless options. The agencies must meet those expectations.

“The cost of not acting now may significantly increase the cost for the transit agency in the future,” Karl said.

See also: Amex Sees Checkout Friction and Security Improvements in Overhauled 3DS2