Article Highlights

Key Takeaway:

Two more small transit agencies in California have launched open-loop payments pilots under a state initiative to help agencies procure the hardware and software they need to roll out open-loop fare payments.

Key Data:

Transit agencies in the state have to accommodate their unbanked and underbanked customers, which according to at least some state officials combine to make up 25%, even 30% of the state’s population. Many of these people do not have credit or debit cards.

Organizations Mentioned:

• Santa Barbara MTD
• Clean Air Express
• CalSTA
• Elavon
• Kuba

California transportation officials announced two more pilots for their open-loop payments initiative, Cal-ITP, bringing to four the number of six-month “demonstration” projects they have launched with small transit agencies and vendors.

Organizers plan to launch a total of at least five pilots, as they seek to demonstrate how the initiative, the California Integrated Travel Project, can help the state’s more than 300 mostly small transit agencies procure more uniform and easy-to-use fare-collection technology, based on contactless EMV technology.

The two latest agencies to pilot the technology are small bus operators serving the city of Santa Barbara and surrounding county. One is public transit agency Santa Barbara Metropolitan Transit District and the other is the county-funded Clean Air Express, which operates commuter buses.

A spokeswoman for Santa Barbara MTD told Mobility Payments that the agency doesn’t have a plan to try to eliminate cash from its buses, but added that it does “encourage passengers to try the new system. It’s much easier for passengers and the agency to not have to deal with cash.”

The agency will only equip 10 buses out of its fleet of 112 buses for the pilot, said the spokeswoman, who added that the agency itself wasn’t paying for the validators on the buses. She indicated that the state was funding the hardware. But the idea behind Cal-ITP is for the state to set up aggregated purchasing contracts with various vendors and for the transit agencies themselves to purchase the hardware and software they need to begin accepting contactless EMV payments for fares. The agencies, in turn, would probably get the money for this equipment from state or federal grants.

The California Department of Transportation, or Caltrans; and its parent, the California State Transportation Agency, or CalSTA; are backing the program, seeking to build a “mobility marketplace,” at which transit agencies could shop for the key components of the electronic fare-collection system. According to one consultant working on the project, the products and services that the agencies will buy under the state contracts are designed to be “plug and play.”

In essence, the state is seeking to use its contracting clout to line up qualified suppliers for these components. The state has already awarded contracts to payments processors/acquirers, Elavon and Fiserv. It issued two more RFPs June 30, one to seek bids from suppliers of EMV-enabled payment acceptance devices, or validators and readers; and the other to provide fare-calculation software for the back office, including engines that could calculate fare capping and other discounts.

The state is seeing strong verbal demand for the technology from transit agencies in the state, a spokeswoman told Mobility Payments. The state will open up the validator and fare software contracts to public transit agencies in other states.  

Visa, long a supporter of open-loop payments to promote more uses for cards carrying its brand, is also a strong backer of the Cal-ITP initiative.

Expected to bid on the fare-calculation software contract is UK- and Australia-based Littlepay, which is providing the fare-capping technology for both pilots in and around Santa Barbara, as well as the first two pilots, which are ongoing in Monterey County and in the state’s capital city, Sacramento.

For the two most recently announced pilots, vendor Kuba said it would provide systems integration and also source the validators, including the EMV-enabled contactless readers, from OEMs. Visa-owned Cybersource will provide the payment gateway, connecting to payments processor and acquirer Elavon.

Besides providing for a more uniform and simplified payments system, the Cal-ITP initiative also aims to enable more accurate trip-planning and discounts for riders. The program seeks to increase transit ridership, decrease costs for agencies and help the state meet its climate change mitigation goals, as well, as Mobility Payments has reported.

But like the Santa Barbara MTD, other public transit agencies that are expected to introduce open-loop payments under the program will keep the cash option. The agencies have to accommodate their unbanked and underbanked customers, which according to at least some state officials combine to make up 25%, even 30% of the state’s population. Many of these people do not have credit or debit cards.

RFP documents from the state acknowledge that agencies may not be able to rid their vehicles of cash for some time to come.

Officials stress that equity is one of the goals of the initiative. They say they will “facilitate” new digital payments methods from fintechs and other companies that will reach people without access to the traditional banking system, including through reloadable prepaid cards supporting the Mastercard or Visa brands.  

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