In what will be the first open-loop payments service launched in Lithuania, the transit agency serving the Baltic country’s third-largest city plans to launch the contactless EMV service by July of this year. The service seeks to transfer opex and some capex costs–and project risks–to the winning vendor.
According to the tender documents, the total cost to the agency cannot exceed €1.4 million. When it reaches that amount, the contract would be terminated, even before the 60-month, or five-year, contract duration had been reached.
In what will be the first open-loop payments service launched in Lithuania, the transit agency serving the Baltic country’s third-largest city plans to launch the contactless EMV service by July of this year, Mobility Payments has learned.
The recently signed contract hires a vendor to set up and operate the open-loop service for up to five years in exchange for fees totaling a maximum of €1.4 million (US$1.5 million), according to tender documents. The transit agency, KKT, which serves the Baltic seaport city of Klaipėda, is believed to have awarded the contract to Estonia-based fare-collection system supplier Ridango.
According to the tender documents, the open-loop service provider is required to implement and run the system at its “own expense, risk and responsibility.” The system must accept contactless EMV cards and credentials in NFC devices branded by Mastercard and Visa on board the agency’s buses. The system must support distance-based fares, fare capping and other features of Visa’s MTT model for open-loop fare collection.
Ridango, as the service provider, would mainly provide the fare calculation, payments gateway and integration and maintenance of the system, in addition to hiring the acquirer. The acquirer is expected to be LHV bank of Estonia, which Ridango has worked with before.
The merchant acquiring service is included in the total fee that Ridango would charge to the transit agency. The agency has not yet announced the contract award or disclosed the fees it is paying. But according to the tender documents, the total cost to the agency cannot exceed €1.4 million. When it reaches that amount, the contract would be terminated, even before the 60-month, or five-year, contract duration had been reached, Mobility Payments has learned.
And if the open-loop service is not used as much as expected, the vendor would not receive any additional compensation from the transit agency.
There is also a gray area in the tender documents as to whether the vendor would have to cover any losses from first-ride risk–if, for example, a customer tapped a debit card that turned out to have insufficient funds in the corresponding bank account and subsequent attempts to collect the debt failed. KKT said it would decide who bears the loss on a case-by-case basis.
‘CEMV-as-a-Service’ Contracts has Precedents
It’s not a typical procurement contract for an open-loop payments service, sometimes called a “cEMV” service. But there are similar agreements that include fare collection and acquiring, along with hardware capital expenses all in one package–and which seek to transfer much of the project risk to the vendor.
One example is a concessionaire deal signed last year by Venetian transit agency AVM with U.S.-based Conduent and its acquiring partner on the project, Elavon.
AVM’s head of institutional and customer relations and chairman of the vendor selection committee told Mobility Payments that AVM negotiated a commercial fee that is less than the maximum rate listed in the request for tender. It starts at 2.5% and later goes down to 2%. The acquiring fees range from 0.5% to 3.5%, the latter if a customer taps an international bank card to pay a fare.
But the Venice project is different in that Conduent also has to buy and install 1,900 certified validators on board buses and other transit vehicles, as well as at platforms and gates, under the same fee.
For the Lithuanian project, KKT, in the tender documents, noted that the validators are already installed on board its buses, with the card readers certified to comply with level 1 and level 2 specifications from the EMVCo group. The latter certification would mean that the readers can accept Mastercard- and Visa-branded cards and wallet credentials. So the winning vendor would not need to buy and install new validators. There is already a back-office system in place, as well.
The finished system would still need to have a third level of certification, for end-to-end compliance with EMVCo specifications, including the connection with the acquiring network.
Another tender document showed that Ridango provided the EMV-ready validators to KKT as part of an earlier project. This project enabled the transit agency to accept closed-loop cards. Klaipėdos keleivinis transportas, or KKT, has around 240 buses.
The fact that Ridango provided the existing validators might be one reason the vendor was able to bid the lowest amount, since it could save on integration costs. The names of other bidders on the contract were not available.
The largest open-loop projects Ridango has supplied to date–mainly validators–are with agencies in Kiev, Ukraine and Skåne County, Sweden.
© Mobility Payments and Forthwrite Media. Mobility Payments content is for individual use and cannot be copied or distributed without the express permission of the publisher.