
Electronic Transit Fare Payment
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Summary
I.SEPTA s New Payment Technologies Project Modernizing Transit Fare Payment
The Southeastern Pennsylvania Transportation Authority (SEPTA), the sixth-largest mass transit operator in the US, launched the New Payment Technologies (NPT) project in 2007 to modernize its aging fare payment system. This involved transitioning from a primarily cash-and-token system to one incorporating electronic payments, including contactless credit cards, debit cards, and agency-issued prepaid cards. SEPTA's motivation stems from evolving consumer payment preferences, increased use of electronic payments, and the obsolescence of its existing infrastructure. The project aims to streamline the fare payment process for 1.3 million daily riders and reduce operational costs. SEPTA's annual fare revenue exceeds $425 million, highlighting the scale of this modernization effort.
1. SEPTA s Background and the NPT Project
The Southeastern Pennsylvania Transportation Authority (SEPTA), established in 1964, is a major public transit operator in the Philadelphia region. It ranks among the top six largest mass transit operators nationally, managing buses and light/heavy rail. SEPTA boasts an annual operating budget of approximately $1.2 billion, employs over 9,000 people, serves an average of 1.3 million daily riders, and generates over $425 million in annual fare revenue. In December 2007, SEPTA initiated the New Payment Technologies (NPT) project to modernize its fare collection infrastructure, moving away from its existing, complex system. This followed previous studies in 1999 and 2006 that highlighted inefficiencies and the need for a more efficient and modern fare payment system. The NPT project’s core goal is the implementation of an electronic collection system that uses payment cards, including contactless credit cards, debit cards, and agency-issued prepaid cards. This aims to create a more efficient and user-friendly payment experience for SEPTA's large ridership. The decision to move forward with this extensive modernization effort reflects a desire to improve both the efficiency of the fare payment process and overall rider satisfaction.
2. Evolution of Transit Fare Payment Technology
Jerry Kane, manager of SEPTA's NPT project, presented a historical overview of transit fare payment technologies. He noted the evolution from coins to agency-issued tokens, then magnetic stripe cards (still relevant for SEPTA). This progression culminated in the current trend towards contactless smart cards and open-loop systems that accept contactless credit and debit cards. Kane showcased examples from various US cities – including Atlanta, Baltimore, Boston, Chicago, Houston, Las Vegas, Los Angeles, Minneapolis, New York, Newark, Salt Lake City, San Francisco, San Diego, Seattle, and Washington D.C. – demonstrating a broad move toward contactless payment options. He also highlighted projects and pilot programs allowing transit agencies to accept bank-issued contactless credit and debit cards at various points of entry, such as turnstiles, fare gates, and fare boxes. This transition reflects a larger industry-wide shift towards more technologically advanced fare payment systems designed to integrate seamlessly with modern payment methods while striving to provide an improved experience for the millions of transit users throughout the United States. The increasing acceptance of contactless payment cards, alongside agency-issued prepaid cards, signals a significant technological shift in the American public transportation landscape.
3. The Role of Consumer Behavior and Industry Collaboration
The shift towards electronic transit fare payment is driven by changes in consumer behavior and industry collaboration. SEPTA recognizes the growing consumer preference for electronic payment methods, evidenced by the increased use of credit and debit cards and a corresponding decrease in cash and check transactions. The increasing familiarity with prepaid models, like E-ZPass, a popular electronic tolling system, also suggests that consumers are open to similar prepaid systems in public transport. Kane emphasized the significance of the rise in micropayments – transactions under $5 – as consumers become more comfortable using bank cards for smaller purchases. The involvement of payment networks (like Visa and MasterCard) and issuing banks (like Citibank) is also critical. These entities see opportunities to expand transaction volume and acquire new customers (transit riders), creating partnerships that mutually benefit all parties involved. The cited examples of WMATA's SmarTrip card and the NYC pilot program between MTA, Citibank, and MasterCard illustrate successful collaborations that benefit both transit agencies and financial institutions. This highlights the role of technological advancements and strategic partnerships in driving the industry-wide shift towards modern electronic payment methods in public transport.
4. SEPTA s Specific Motivations and Challenges
SEPTA’s pursuit of electronic fare collection is motivated by several factors. Streamlining the current payment process – reducing the two-step transaction of buying fare media then using it for a ride – aims to save riders time. Addressing the obsolescence and increasing maintenance costs of its existing fare collection equipment, including the need for costly part replacements, is another major incentive. The high cost of maintaining revenue collection equipment, exceeding $3 million in 2005, and the scarcity of replacement parts underscore the urgency of modernization. Moreover, improving data collection on fare payment and ridership patterns will enhance operational efficiency. However, SEPTA faces several challenges, including the need for faster transaction processing (under 300 milliseconds) to meet the demands of contactless payment technologies. This requires technological advancements or adjustments to payment network rules. Integrating bankcard payments across all lines, particularly the regional rail system without turnstiles, poses additional logistical hurdles. The project also needs careful consideration of security measures and fraud prevention strategies alongside the seamless integration of various payment options. The implementation plan itself is extensive and will require multiple years to fully integrate all aspects of the new electronic fare collection system.
II.Factors Driving the Nationwide Shift to Electronic Transit Fare Payment
The nationwide adoption of electronic transit fare payment systems is fueled by several key factors. The sustained growth of electronic payments in the US, with credit and debit card usage exceeding 50% of all noncash transactions in 2006, is a significant driver. Increased consumer familiarity with prepaid payment devices linked to bankcards and the growing acceptance of micropayments have also contributed to this shift. The active participation of payment networks (like Visa and MasterCard) and issuing banks (like Citibank), motivated by increased transaction volume and access to a large customer base of transit riders, is crucial to this change. The success of programs like E-ZPass, which boasts over 9 million account holders, demonstrates the potential for widespread consumer adoption of similar electronic transit payment solutions.
1. The Rise of Electronic Payments
A key driver behind the nationwide shift to electronic transit fare payment systems is the dramatic increase in electronic payment transactions. Data from the Federal Reserve's 2007 analysis of noncash payment trends in the United States reveals a significant surge in electronic payments, including credit and debit card transactions. From 2003 to 2006, these payments experienced a combined compound annual growth rate of 12.4 percent. Debit card payments showed even more significant growth, with signature debit cards increasing at 15.8 percent and PIN debit cards at 20.6 percent annually. Remarkably, in 2006, for the first time, credit and debit card payments surpassed 50 percent of all noncash consumer payments. This substantial shift towards electronic payment methods strongly influences transit agencies to adopt similar systems. The increasing prevalence of electronic payment systems in everyday consumer transactions underscores the necessity for public transportation systems to modernize their fare collection methods to align with the evolving payment habits of their ridership.
2. Changing Consumer Preferences and Micropayments
The adoption of electronic transit fare payment systems is strongly linked to evolving consumer preferences and their increasing comfort with various payment methods. Consumers' growing familiarity with using payment cards to manage prepaid electronic travel products and their acceptance of bankcards for low-dollar transactions are noteworthy. The emergence and success of micropayments—small-value transactions—have significantly impacted payment behavior. This shift is exemplified by the increasing acceptance of using credit and debit cards for transactions previously considered too small, influenced by services like iTunes. A 2006 Payment Cards Center discussion paper, "Micropayments: The Final Frontier for Electronic Consumer Payments," highlights this tipping point where widespread adoption of electronic micropayments is becoming a reality. This change in consumer perception and behavior underscores the need for transit systems to adapt their payment infrastructure to accommodate these evolving preferences and provide a more convenient and familiar payment experience.
3. The Collaborative Role of Payment Networks and Banks
The active participation of payment networks (like Visa and MasterCard) and issuing banks (like Citibank) is a crucial factor in the adoption of open-platform electronic transit fare payment systems. These entities are actively involved in planning and design, leading to common operating procedures across different systems. The Washington Metropolitan Area Transit Authority (WMATA) serves as a prime example, having pioneered the use of payment cards in transit and attracting the attention of payment networks and banks through its successful SmarTrip card (launched in 1999) and subsequent credit card acceptance at entry points. Pilot programs in New York City involving the Metropolitan Transportation Authority (MTA), Citibank, and MasterCard further illustrate successful collaboration and a willingness to explore new contactless technologies. Payment networks are driven by the potential to capture significant transaction volume from this previously untapped market, given the enormous number of daily transit rides. The involvement of banks and payment networks provides valuable support and resources in the development and implementation of new electronic payment systems, ensuring a broader adoption of these efficient and convenient methods throughout the public transportation sector.
III.SEPTA s Motivations for System Modernization
SEPTA's decision to electronify its system is driven by several factors. Firstly, it seeks to streamline its current two-step electronic payment process, making it easier for riders to use bankcards directly for payment instead of purchasing fare media first. Secondly, the project addresses the obsolescence of its legacy fare collection equipment, reducing high maintenance costs (over $3 million in 2005) and improving efficiency. This includes replacing outdated components and integrating new technologies. Finally, SEPTA aims to enhance data collection capabilities for better operational insights and resource allocation, improving service and overall efficiency of their transit fare payment system.
1. Streamlining the Consumer Payment Process
A primary motivation for SEPTA's modernization is to simplify the fare payment process for its riders. Currently, using bankcards for fares involves a two-step process: purchasing SEPTA-issued fare media (tokens, tickets, etc.) using a bankcard, and then utilizing that media to pay for the ride. This creates unnecessary delays and inconvenience. The NPT project aims to eliminate this cumbersome two-transaction system by allowing riders to directly pay their fares using contactless bankcards at fare gates, turnstiles, and fare boxes. This direct payment method will reduce waiting times at stations and provide a more streamlined, user-friendly experience, aligning with SEPTA’s new customer-centric approach. The simplification of the fare payment process is a significant improvement for riders and is anticipated to enhance overall rider satisfaction, potentially increasing ridership and easing congestion at fare purchasing points. This change also reduces SEPTA’s need to manage and distribute its own fare media (tokens and tickets), an expensive process that is not core to its transportation mission. As Kane stated, "SEPTA is in the business of providing quality transportation to its riders, not printing money."
2. Addressing Infrastructure Obsolescence and Rising Costs
SEPTA's existing fare collection infrastructure is outdated and increasingly expensive to maintain, providing another strong impetus for system modernization. The agency’s “revenue collection equipment,” including turnstiles and fare boxes, is experiencing significant obsolescence. Essential components, like logic boards and processors, are becoming unavailable, forcing SEPTA to rely on cannibalizing older equipment. The cost of maintaining this aging system was over $3.3 million in 2005, a figure expected to increase as parts become scarcer and more expensive. The NPT project addresses this by integrating new contactless payment card technology, which will simultaneously upgrade the system's functionality and reduce long-term maintenance costs. While not all equipment will be replaced immediately, upgrading existing systems with complementary technologies wherever possible offers an economical alternative to full-scale replacements. By investing in the new system, SEPTA aims to reduce these expenses while ensuring its fare collection infrastructure remains reliable, efficient, and supports the use of modern electronic payment methods.
3. Enhanced Efficiency and Data Collection
The new electronic payment system offers substantial efficiency gains for SEPTA beyond simply streamlining rider payment processes. The current system’s varied cash transaction types—pure cash transactions and those involving the sale of prepaid fare media—result in varying collection costs. The costs of collecting each dollar from cash sales incurring future liability are significantly higher than those that do not (ranging from 14 to 40 cents, compared to around 8 cents for purely cash transactions). Electronic systems promise to significantly reduce these costs. Research from the Federal Reserve Bank of Boston indicates that the overhead cost of processing cash transactions is roughly double that of debit and credit cards. Beyond cost reduction, the new electronic system will enable SEPTA to collect substantially more detailed data on fare payments and ridership patterns. This enhanced data collection will provide valuable insights for optimizing vehicle deployment, resource allocation, and overall system efficiency. While data privacy regulations may limit certain types of data storage, the benefits of improved operational analysis and efficient resource management are substantial. This detailed, real-time information will be invaluable to SEPTA’s operations and planning, helping the agency to provide the highest quality public transportation services to its vast ridership.
IV.Challenges and Implementation Stages of SEPTA s Project
SEPTA faces several challenges in implementing its new system. The short transaction time required at fare gates (300 milliseconds) necessitates new technologies or adjusted payment network rules to accommodate real-time bankcard authorization. Integrating bankcard payments into its existing infrastructure, especially on its regional rail lines, presents unique logistical hurdles. Balancing the need for security with the speed of transactions is crucial. SEPTA plans a multi-year implementation in four stages: Stage zero focuses on research and contracting; stage one, on establishing the infrastructure for its prepaid contactless cards; stage two, on expanding contactless card acceptance and interoperability with other local providers; and stage three, on integrating future technologies like mobile phone payments using NFC. These stages will reveal and address further challenges.