Open-Loop Technology May be ‘Interoperable,’ but Not for Transit Agencies; Trade Group Wants to Help Remedy That

One of the main selling points for open-loop payments is that it offers a form of interoperability that enables riders to use the same credit or debit card to pay their fares whether they ride in London, New York or Singapore.

But when it comes to interoperability in the way transit agencies can roll out and operate open-loop payments services, much more work needs to be done. That’s according to managers at the Brussels-based International Association of Public Transport, which last July launched the Urban Mobility Open Payments Forum, with two payments networks, Visa and American Express, along with Germany-based fare-collection system vendor Scheidt & Bachmann. Vendors Thales and Flowbird later added their names to the initiative.

Andrea Soehnchen, UITP’s manager of the forum and Jaspal Singh, head of the association’s IT Committee, recently talked to Mobility Payments about the mission of the forum and where they see the problem areas for rollouts of open loop.

Mobility Payments: Why did you feel this forum was necessary?

Soehnchen: The forum actually started as an initiative from UITP industry members. What we had noticed already for quite some years, of course, is that you had a trend toward more contactless ticketing, smart card ticketing. When the pandemic started, we could really see an enormous jump in interest for contactless ticketing, including EMV ticketing. So then we felt the time was right to focus more on EMV payment in public transport.

The idea of the forum is actually to bring together the actors or the ecosystem. We have the payment schemes and the banking sector, the technology providers and consultants and then, of course, also the transport operators and authorities. (It was) to just bring them together with the objective to educate the transport market more about EMV payment; to see where are the challenges and how can we help to make it a bit easier to adopt EMV payment.

MP: Can you be more specific about the challenges you see the industry facing in rolling out contactless open-loop payments?

Soehnchen: If we take the challenges from the operator side, what they actually struggle with is to understand, let’s say, the ecosystem and the mechanics of open-loop payment, because the classic ticketing process in public transport is, of course, you buy a ticket and then you make the journey.

So the transport operator gets paid up front, and if you now see the models of open-loop payment, then this whole process has changed and that is something that you need to digest and understand first. They actually have a lot of questions on risk management, on how do you make sure to be paid. How can you ensure that you have the correct data; that everything in the back office is working well.

MP: One thing I’ve heard you say, Jaspal, is that everybody’s working in silos when it comes to open loop. What do you mean by that?

Singh: A lot of these players in the industry, like Visa, Mastercard, American Express and Google Pay and Apple Pay are pushing for open-loop payment systems and open-loop payment networks, but their approaches were very different. And the transit agency, if they are working with Visa and when they start talking to Mastercard, it was entirely a very different discussion.

The idea was to make it more easy plug and play. But instead of that, what was happening was that every player has their own terminology. Every player has their own traditions and business model and the way they were implementing the solution. And it was causing a lot of problems for the transit agencies and also increasing the costs.

MP: Does any example come to mind of the differences, not just in terminology, for how they (Visa and Mastercard) want transit agencies to roll out open loop?

Soehnchen: It comes to the fare-aggregation model and it also comes to the risk management in the fare process. And it may not be major differences. And this is something that’s not addressed in detail in the (forum) meetings because that’s a commercial confidence thing. But even these small differences require the technology providers of the terminals, for instance, to ensure that every validator, every card reader, every terminal is prepared to take 150,000 different little variations on board.

And they need to be recertified and recertified for all of these different models. And if this could be streamlined a bit more, then we can actually remove some of these small differences. This would really help the technology players to have simpler solutions for terminals and simpler processes to keep them up to date and to maintain them.

MP: You know, when we think about open-loop payments, they’re supposed to be interoperable–that is, you could use the same payment card to pay for a fare in London and New York and Singapore. But, in some ways, it really isn’t interoperable. Just think about fare capping. Unless the agency is big enough, like Transport for London, which oversees all modes of transport, if you have different agencies overseeing particular transport modes, it’s difficult to have any interoperability for fare capping and discounts, right?

Soehnchen: You actually have these interoperability problems on all sides within the system. What you just described indeed is the challenge we have on the transport authority side. So, as you say, for Transport for London, if you stay in the territory of one authority with an integrated tariff system, it actually works. But the moment you are using an operator who’s not part of this system, the fare integration is difficult.

Then you have this interoperability problem also for the EMV standard in public transport because not every banking card is actually enabling the payment models that you need for public transport. So the retail model is basically okay for any bank. But your bank may not have allowed the (aggregation) fare-paying model for public transport. So your bank card basically is useless.

The third element of this is when, in theory, you could use any bank card or any mobile phone. (But) paying with your mobile, you would pay with a different token than when using your bank card. And then, of course, it makes it difficult to get one overview and aggregate fares for one user. The system doesn’t automatically see it’s the same bank account behind it. So actually, on all sides, you have these interoperability challenges still.

MP: That third challenge, I think we pretty much see everywhere–you have to use the same card or mobile wallet, otherwise you won’t get the fair capping. They don’t know it’s the same user.

But is that something that agencies are asking for?

Soehnchen: Well, in the end, what counts is the trust that passengers would have in the system, because what you don’t want as a transport operator or authority is, of course, that your customers start complaining to have been double-charged, or they don’t understand the charge. And you also have the challenge, I mean, if you take traditional ticketing, you have something like family tickets or a group discount. How do you translate this into EMV payment?

MP: Do you think small agencies have trouble introducing open-loop payments with the current ecosystem? I mean, they can’t hire a big systems integrator to roll out the whole system for them.

Soehnchen: What we actually see is, the trailblazers for EMV payment were organizations like Transport for London, then you also have MTA in New York. And you have here Hong Kong. (Hong Kong only recently began accepting open loop on buses). So it’s really the big organizations that basically did all the homework. But we actually also start to see smaller organizations picking up and this is again one of the objectives of the forum, to try and create different standards.

So what is the minimum standard? What is the easiest solution that you can actually implement, and it doesn’t have to be very complex? And maybe it doesn’t need fare capping. Maybe you can just start very, very easy. And this is actually what we want to develop, like a standard roadmap for small organizations. How can you implement it as easy as possible, and what is the minimum thing that you have to do?

MP: Okay, a playbook. But what specific standards or specifications would you like to see put in place to help agencies roll out open loop?

Soehnchen: Probably the basic distinction that we can make is coming from the tariff system. So if you could have a playbook saying, roll it out for one specific type of ticket or one specific mode of transport. Don’t go for the big bang. Do it gradually. But what is the optimal course in this gradual implementation? What are the things you should do and shouldn’t do in order to implement it?

So maybe you can simply start by taking the tourists tickets, the single-day tickets or the simple single fares as a starting point.

So what is the easiest way to implement it? Because we actually see a lot of small agencies interested in implementing it. They just tend to be, let’s say, perhaps over-impressed by the complex model of London. That’s why we really try also to promote examples from smaller cities, more simple approaches.

MP: Do you think there needs to be more uniformity in the fees that transit agencies pay to accept open-loop payments? I’m talking here about transaction fees based on interchange. It’s regulated in Europe, but not so much in the U.S. And there is a big disparity in how much agencies pay to accept debit and credit cards in the U.S. versus Europe. Do you hear that being a problem?

Soehnchen: It is indeed one factor of hesitation. But in the end, I guess, that will make or break the future of EMV payment. I mean, is it worth considering this system for a transport agency or not? If they are losing money, if the cost-benefit ratio is not right for them or their customers, they will simply not adopt it.

MP: Have you heard of agencies that are reluctant to adopt open-loop payments because of the fees they have to pay for interchange to card issuers?

Soehnchen: I don’t know to what extent this could be the reason for projects being delayed. I mean, it’s maybe the kind of detail they wouldn’t share, because those are really commercial discussions that we wouldn’t be aware of.

Singh: I don’t think we have had any discussion on that point ever.

MP: What about other costs, like paying for certified readers and validators and integration with the back-office software. Is that something that is creating challenges for agencies?

Soehnchen: I didn’t hear this from a cost perspective. I think it’s more the complexity and the effort of having your validators or your terminals changed and certified.

Singh: And many of the agencies, they have contractual obligations. So can they do that or not do that? That’s also one of the key hurdles to moving toward open-loop payment–what are the obligations with the existing contractor?

MP: Has UITP done any surveys on open-loop projects, (to chart) the increasing number of implementations?

Singh: We don’t have an exact number, how many systems and all, but what we know is that many of the agencies are moving forward, especially in Europe. And during this pandemic, they had these old contactless smart card systems, and they were forced to shut down the ticketing collection, because they didn’t want people to touch the system, to have any contamination. And that’s what they do after that, move toward contactless-payment systems.

And I must say that it’s not only with EMV. It’s also mobile ticketing, which is gaining a lot of popularity in many cities. And also it’s not just one solution cities are looking into. They are trying to find out what can be best suited for them. There is a growing trend to implement a new kind of solution.

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