Article Highlights

Key Takeaway:

“Closed-loop EMV” provides an alternative to proprietary closed-loop cards, such as those based on Mifare. But despite promotion by such suppliers as Visa and Mastercard, closed-loop EMV is not yet taking off.

Key Data:

Table: Transit agencies and closed-loop EMV

Transit agency Storstockholms Lokaltrafik, or SL, in Stockholm launched what is believed to be the industry’s first rollout of white-label EMV cards for its closed-loop customers in September 2021. To date it has issued around 1.5 million of the cards, which customers use frequently.

New York’s Metropolitan Transportation Authority followed a little more than a week later, launching its own white-label OMNY card. Although use of the closed-loop OMNY card remains low, MTA believes that this card, when combined with the strong usage the agency is seeing for open-loop payments, will enable it to completely phase out its 30-year-old mag-stripe MetroCard by next year.

Yet, 18 months after the launch of these two projects, no other transit agency globally is believed to have introduced white-label or other “closed-loop EMV” cards; nor have agencies or vendors announced new projects. And while at least a few agencies have acknowledged they plan to use the technology, they are not making noise about it. (See table on this page for short list of projects.)

And among the agencies that are undecided about closed-loop EMV is the biggest enabler of open-loop payments of them all, Transport for London. The authority’s hesitation to embrace the technology is no doubt a disappointment to promoters of closed-loop EMV, who thought London would definitely replace the proprietary Mifare DESFire technology it uses for its closed-loop Oyster card with EMV.

Still, backers of closed-loop EMV, which combines closed loop payments with open-loop technology, say they are hearing demand in the industry. There are indeed some large transit agencies, such as those in Dubai and Dublin, that are considering the technology. They decline to talk about it, however, citing ongoing procurements that may or may not include purchase of the new fare cards and other support technology.

In this new special report, Mobility Payments updates our much-read report on white-label EMV technology published in October 2021:

Intro: Can EMV be Closed Loop?

Some in the fare-payments industry believe “closed-loop EMV” is a contradiction in terms. As one fare-collection industry veteran and long-time consultant in Europe told Mobility Payments: “Closed loop is not EMV; I consider EMV to be open loop.”

But EMV can indeed be used for closed-loop payments, note backers, among them, major payments schemes Visa and Mastercard. These schemes are promoting closed-loop EMV technology at least in part to sell transit agencies on their prepaid and private-label products. They also want to further cement support by agencies for open-loop payments by offering closed-loop EMV as a complementary technology.

With closed-loop reloadable EMV cards, agencies, for example, could accommodate unbanked and underbanked customers and also enable concessionary discounts for seniors and other eligible riders–both without having to run a separate and proprietary closed-loop card system, say backers.

Closed-loop EMV uses many of the same features and protocols as EMV credit and debit cards. For example, agencies issuing their own white-label closed-loop EMV cards would still need to “buy” PANs, or primary account numbers, from the payments schemes, said a source. As an alternative, they could get the PANs from a small bank, fintech or other “BIN sponsor” that a payments scheme could bring on board for the project.

If the scheme recruits a BIN sponsor, this entity would usually issue a prepaid bank card for the transit agency. It might also manage the payments accounts. Prepaid bank cards, which can be limited to only transit fare payments, are a closed-loop EMV alternative to white label. (See below).

Transit agencies rolling out closed-loop EMV would also have to have a license to use the scheme’s payments application for its physical cards and also in virtual versions of the cards loaded into NFC wallets. And they’d need another license that gives them the right to use a scheme application kernel in readers in their bus and gate validators. For example, Stockholm’s white-label SL card is using a contactless kernel from Japan-based JCB.

Some card vendors working with payments schemes can help agencies obtain the PANs and licenses, presumably for an additional cost. Once issued, the transactions would be authenticated like those with EMV credit or debit cards.

The list of transit agencies so far using closed-loop EMV technology or planning to do so is small. Source: Mobility Payments.

Even with streamlined authentication for transit fare payments, EMV transactions are believed to take longer than for most proprietary closed-loop technology. EMV transactions–which are usually not authorized immediately–are supposed to take no more than 500 milliseconds. The technology doesn’t always meet that target, but the speed appears to be sufficient for even busy stations, as Transport for London demonstrates with its broad acceptance of credit and debit cards and credentials at its bustling Underground gates, along with its other modes of transport.

Of course, to introduce closed-loop EMV, especially with white-label cards, agencies would need to have an account-based ticketing system in place. In particular, that would be required if the agencies issue and process the closed-loop EMV transactions themselves.

Backers: Using One Technology Can Save Agencies Money

The vast majority of agencies now supporting open loop maintain a separate and usually parallel card-based closed-loop payments system, using such technologies as Mifare or Calypso.

Closed-loop EMV promoters contend that by using just one technology on terminals, agencies can save money. They could buy off-the-shelf terminals supporting EMV, not needing to procure bespoke technology that combines open loop with proprietary closed-loop technology, say the backers. The terminals would use a single “standardized” and technically interoperable technology, EMV, which the global payments scheme specify with their EMVCo joint venture.

But in practice, supporting closed-loop EMV cards and credentials on the same terminals as open loop may not go as smoothly as agencies would hope.

During a quarterly meeting yesterday of the committee coordinating the rollout of EMV fare technology throughout the Netherlands, Dutch transit agencies heard that there could be issues with at least some of the 65,000 EMV-ready terminals agencies have rolled out. The issues will be caused, in part, by the closed-loop EMV card that agencies plan to introduce this year, Mobility Payments has learned.

One slide in the meeting presentation said that rolling out the closed-loop EMV card will “sharply” increase the size of “risk lists,” needed to be stored on the terminals. That is an apparent reference to blacklists and other security data needed to prevent users from tapping to pay with fraudulent accounts.

There could be other lower-level (level-1) functionality problems with the terminals, preventing them from efficiently handling communications, “risk management” and “transaction processing.”

There will also be potential problems supporting Apple Pay’s express transit mode for both open loop and virtual closed-loop cards on the terminals. Express mode enables users of virtual credit, debit and closed-loop transit cards to tap their iPhones and Apple Watches to pay without having to unlock the devices.

The issues mentioned are “not exhaustive,” according to the slide, obtained by Mobility Payments.

Some of the 65,000 terminals are low-cost models and might need to be replaced, even though they currently process open-loop transactions. And even if terminals are updated, keeping the same hardware, they’d still likely need to be recertified.

A representative from the Dutch fare payments project downplayed the potential problems with the terminals.

“It is like with PCs; most of the installed base is excellent,” he told Mobility Payments. “Some of them will possibly have challenges at some point in time. Memory and CPU are the key issues obviously.”

Two Flavors of Closed Loop EMV

Unlike transit agencies in Stockholm and New York, the group of nine transit agencies in the Netherlands rolling out open-loop are not planning to issue their own white-label EMV cards to replace their aging closed-loop cards that use low-end Mifare Classic technology. Instead, they have hired a bank to issue prepaid cards.

This is the second type of closed-loop EMV cards available to agencies: prepaid bank cards. While agencies issue white-label cards themselves, prepaid bank cards, as the name suggests, are issued by banks or fintechs, often recruited by the major payments schemes.

Unlike a few earlier prepaid bank cards used for transit fare payments–most notably in Chicago 10 years ago–the trend today appears to be to limit these bank-issued prepaid cards only to fare payments.

That will be the case for the Dutch prepaid EMV card, called “OV-pas,” or “public transport pass.” The group of nine Dutch transit agencies, along with Translink, which manages the existing Mifare-based closed-loop system, are rolling out the new closed-loop card starting this year, with a pilot planned for this spring.

The bank the Dutch agencies have hired is a Netherlands-based pan-European neobank called bunq. Bunq, which is a mobile or online bank, will be a sort of a silent partner to issue and process the new EMV prepaid fare payments, said a source.

Organizers of the Dutch fare project, known as OVpay, declined to comment on the reasons for going with the prepaid bank card model instead of white label. But sources said organizers believed they would have needed a full banking license to issue new closed-loop cards and manage the stored-value accounts themselves. That’s why they did not choose the white-label model.

One source connected with OVpay noted that Translink will continue to be the customer-facing entity for the new closed-loop card program, like it is for the current OV-chipkaart (OV-chip card) program. Customers will not think they are dealing directly with bunq, said the source.

Planned design for the closed-loop prepaid EMV card in the Netherlands

The current design (see right), shows that the closed-loop cards will sport logos of bunq and Mastercard along the bottom. (Mastercard is providing some EMV technology for the card).

Although clearly marked as a transit fare card, the Mastercard logo could confuse some cardholders into thinking they could also use the stored-value card for prepaid open-loop transactions at stores or other retail locations. That is not the case.

Not everyone agrees Translink would have needed a banking license or even an e-money institution license under European Union rules if it had issued its own closed-loop EMV cards, especially if customers could only use the cards for transit-fare payments.

Stockholm transit agency SL told Mobility Payments it determined it could issue and manage white-label cards itself without a banking license, “since the new SL card doesn’t hold account funds, it holds prepaid tickets,” a spokeswoman said.

But industry observers believe it’s unlikely that agencies need any kind of banking or e-money license in Europe if their transactions are only for transit and do not involve third-party networks.

“That’s one of the discussions around account-based ticketing,” said one industry veteran who asked not to be named. “When you migrate from card-based ticketing to account-based ticketing, the money moves from the card to the central back office. So the question is, if my central back office manages huge amounts of money, do I need to have some bank license? Do I become a bank? The answer is no. It’s no because the money is closed-loop money. It can only be used in transit because the (transaction) amounts are low. Worst case is, you get a waiver from your central bank.”

Other Agencies Interested in Bank-Issued Prepaid Cards

In perhaps the first transit card using prepaid EMV technology, the Chicago Transit Authority, or CTA, tried to combine a transit closed-loop stored-value account with an open-loop bank card. This Ventra “prepaid debit” card could be used for both transit fares and retail purchases–that latter with a separate Mastercard-branded prepaid account. Launched in 2013, CTA killed the concept four years later, acknowledging that customers weren’t using the card in stores or restaurants.

This undermined the agency’s business model for the card, which was reportedly to collect a cut of the interchange when the cards were used at retail. Under the plan, this revenue would have more than covered the agency’s costs for supporting the card.

White-label EMV cards did not exist when CTA was developing its closed-loop program. But there are perhaps a few other reasons to go with prepaid cards over white label, say observers–besides staying on the safe side of banking regulations, as the Dutch agencies believe they’ve done.

If, for example, a group of transit agencies rolling out open loop have multiple back offices, they might be more likely to hire a bank to issue and process the closed-loop transactions rather than issuing and processing the white-label transactions themselves.

That is the reason that the New Zealand Transport Agency is believed to have chosen to use a prepaid bank card for its forthcoming national closed-loop transit card.

It’s part of the nationwide open-loop rollout and account-based ticketing system called the National Ticketing Solution. The country’s transport agency, also called by its name in the Māori indigenous language, Waka Kotahi, is spearheading the rollout. The agency declined to respond to a request for comment to say whether it has chosen a bank or fintech to issue the new national closed-loop cards. But spokespersons for the national agency and for the biggest regional transit authority, Auckland Transport, said the new national closed-loop transit card would be “prepaid card,” and one spokesperson said it would support EMV.

New Zealand, at present, has at least four separate card-based, closed-loop transit card programs, all using proprietary closed-loop technology, such as Mifare DESFire. They are led by the AT HOP card in Auckland and Snapper in Wellington. This means there are at least four back offices processing closed-loop transactions in New Zealand. So it would be difficult to issue and manage one white-label card program across the country.

Elsewhere in Asia Pacific, Sydney, Australia-based Transport for New South Wales believed it needed the help of a payments company to launch its digital Opal prepaid card. It hired Mastercard Prepaid Management Services to test the card for NFC mobile wallets for a trial the agency launched in late 2020. Mastercard brought in BIN sponsor EML Payments Ltd., to issue the virtual card.

The agency declined to comment on the future technology the digital Opal card would use, citing an ongoing procurement. But a news report earlier this month quoted a state minister as saying transit agency officials “are aiming to implement a rollout of the digital Opal card” by the end of this year or during the first quarter of 2024. The report did not say whether the agency planned to stay with the prepaid bank card model.

And in California, consultants for a state-backed program, Cal-ITP, designed to help small agencies procure open-loop technology, earlier floated the idea for a white-label EMV card for the agencies to use for closed-loop payments.

Cal-ITP organizers believed that a closed-loop card was necessary, in particular to accommodate the large number of underbanked and unbanked riders–together totaling more than 25% of California’s population. These riders may not have or want to use an open-loop card or credential, such as a bank-issued debit card.  And Cal-ITP has opened its procurement contracts to agencies across the U.S.

But with Cal-ITP’s modular, decentralized approach to agencies rolling out their own open-loop services, a white-label card program would not apparently be a good fit.

Instead, backers of the project appear to have pinned their hopes on such prepaid “solutions” as the Cash App from the fintech Block, formerly known as Square. This app is an open-loop payments product, not strictly closed loop.

Costs Higher for Prepaid?

White label appears to be cheaper for agencies than hiring a bank to issue and manage a closed-loop prepaid card, however.

With prepaid cards, the transit agency would have to pay fees for the “acquiring, network (and) issuer,” said a white-label backer. And, of course, the agency would pay the top-up fees for the prepaid accounts.

With a white label card, the agency would instead process transactions in its own ticketing back office, either by a vendor the agency hires or the agency itself. And the agency, of course, would have to pay to issue the cards and cover top-up fees and other costs.

Dutch transit officials have said that they would price the new bunq-issued prepaid EMV card for customers at €6 (US$6.50), with a five-year validity date.

A source connected with the Dutch project said officials set the €6 per-card price to cover fees and other costs that the agencies and Translink will incur for supporting the new prepaid EMV card program. And plans call for putting the new prepaid bank card into NFC wallets, such as those connected with Google Wallet and Apple Pay, at a cost to the customer of half the price for a physical card, or €3 per virtual card.

There was no estimate for how much Dutch agencies would have paid for white-label cards. But the new prepaid card will be priced even lower than the high €7.50 price customers now pay for current closed-loop OV chip card, based on Mifare Classic.

Regarding costs, the spokeswoman for SL in Stockholm, when asked why the agency chose white label instead of prepaid, told Mobility Payments that “with our volumes, it’s cheaper to issue the cards ourselves.”

She did not discuss actual capital or operational costs. But SL appears to have gotten a good deal on its white-label cards themselves, in a bid won by France-based Idemia in early 2021, as Mobility Payments reported. The price appeared to be competitive with the proprietary Mifare Plus technology from NXP Semiconductors that the agency had been using for its closed-loop Access card. It has phased out these cards in favor of the white-label SL card.

High Volumes in Stockholm, Not in New York

Customers use the 1.5 million white-label cards SL has issued frequently, according to the spokeswoman. On a regular day, SL records 1.4 million “validations” or taps of the white-label cards, she said. Although customers only need to tap in, not tap out, for rides, they do need to tap each time they transfer to a new transport mode, such as going from bus to the underground. So each one-way trip is made up of an average 1.6 taps, the spokeswoman said.

As compared with 1.4 million daily taps with the white-label closed-loop cards, SL counts only 200,000 taps each day with open-loop cards or wallet credentials and another 400,000 daily validations with its mobile app, which uses visual validation and 2D barcodes.

SL Card at open-loop terminal
White-label closed-loop SL card used at an EMV-enabled terminal.

Customers can buy single tickets and a range of passes: one- and three-day, weekly, monthly, 90-day and annual, to load into the closed-loop card accounts and those connected with the mobile app. Open-loop is only available for single-trip tickets. This helps explain why open-loop validations represent only 10% of total validations with electronic fare-payments methods, while closed-loop makes up 70%.

New York’s Metropolitan Transportation Authority has said it will completely phase out the mag-stripe MetroCard by next year, so they’re still in use.

That may be why, after 18 months, the white-label OMNY card still accounts for fewer than 1% of all OMNY transactions (not counting MetroCard transactions), a spokesman confirmed to Mobility Payments. The vast majority of OMNY transactions are open loop, which is seeing strong use by riders. MTA has even enabled riders to link their concessionary discounts to open-loop cards and wallet credentials, though it cannot yet determine their eligibility for the discounts directly with open loop.

Idemia also is apparently supplying the white-label OMNY cards for MTA. The agency did not confirm that, however. The system integrator for the entire OMNY open- and closed-loop project is Cubic Transportation Systems, which likely had a hand in hiring Idemia.

Closed-Loop EMV Yet to Take Off

Meanwhile, the fact that Transport for London is undecided about using either white label or prepaid EMV cards for its next-generation Oyster card, was confirmed recently to Mobility Payments by Andrew Anderson, head of customer payments.

He did not say why, but Mobility Payments has learned that one reason might be that the agency wants to retain full control and management over its closed-loop card system. If true, the agency apparently believes it could not keep full control even with white-label cards, which the agency, itself, would issue.

The agency’s hesitation to committing to support closed-loop EMV means that Transport for London could eventually decide to stay with the same Mifare DESFire closed-loop technology it’s been using for its Oyster card for years.

NXP Semiconductors, which owns Mifare, the most-used technology for closed-loop cards globally, did not respond to a request for comment for this article.

In a statement the vendor made 18 months ago to Mobility Payments, NXP said that “with closed-loop (Mifare), service providers have full system ownership and 100% coverage of user demographics, in the case of unbanked citizens, elderly people, etc.”

In addition, white-label EMV cards, when delivered in “collaboration” with banks or payments networks, such as Visa and Mastercard, would require agencies to pay additional charges, the chip supplier said.

Transport for London’s reservations about closed-loop EMV perhaps typifies the current problems for companies trying to sell agencies on closed-loop EMV.

Sources say some agencies are put off by what they believe will be added costs and loss of control with closed-loop EMV. Regarding data, agencies perceive that they would receive less information about their customers, including travel patterns and spend, than they would get with their own closed-loop cards. This would especially be the case if they allowed a bank to issue and manage the closed-loop cards for them.

Moreover, some agencies say they don’t want to become too dependent on the payments schemes, in general. That fear likely extends to closed-loop EMV.

All of this might explain why white-label and other closed loop EMV cards are not yet taking off, or as one industry observer put it:

“The problem with white-label is that it does not solve much and remains more expensive than closed loop credentials. The problem with prepaid is that the agency is not in control of its own business rules.”

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