This article is the second in a series looking at approaches to serve the unbanked consumers in the transit industry. This month’s article reviews the traditional approach — establishing a retail channel to sell fare products. The third article in the series will look at how network-branded prepaid cards could be used to serve the unbanked transit customer.

Prior to the advent of smart card-based AFC systems, serving unbanked transit riders was simple: riders paid cash at a fare box or used cash to buy fare media at ticket vending machines and retail outlets. Ownership of a bank account was irrelevant as to whether or not a transit rider could pay a fare or otherwise have full access to the public transit system, since nearly every transit fare media sales channel accepted cash. (Exceptions included ticket-by-mail programs and, more recently, ticket vending machines that accept credit/debit cards only.) Transit agencies were concerned with providing access and availability, as required by Title VI, but they defined the requirement as guaranteeing access to persons of all races and persons of all incomes. Historically, meeting this requirement meant ensuring frequency and coverage of service throughout a region, establishing multiple retail outlets to sell prepaid fare media, and partnering with agencies serving low income persons to facilitate sales of subsidized fare media.

Over the past 10 years, the introduction of smart card-based AFC systems such as the Washington, D.C. area’s SmarTrip, Chicago’s Chicago Card, and the San Francisco Bay Area’s TransLink, have made ownership of a bank account relevant to transit access and availability. In many cases, the smart card programs offer a feature that allows the transit rider to link the transit smart card to a credit card or checking account that automatically replenishes fare value when the card’s balance falls below a certain value, on the first of the month, or when a pass expires. The Bay Area’s transit agencies have identified this feature, known as autoload, as the preferred method for vending value to transit riders. Autoload maximizes the convenience of the smart card, minimizes the cost of vending fare value, and creates a predictable revenue stream for the agencies. In the Bay Area, the autoload feature is proving to be popular among the initial group of TransLink cardholders. As of April 2008, about 50% of the approximately 20,000 cardholders who used their cards within the past year were registered for autoload. However, neither TransLink’s autoload feature nor similar features offered by other programs are available unless a transit rider has a bank account or credit card.

Pilot programs underway in New York City and Salt Lake City further emphasize the importance of being banked. These programs accept bank-issued credit and debit cards for fare payment. Like closed-system smart card programs, these programs are intended to maximize customer convenience and lower the cost of vending and collecting fare value.

Establishing approaches for offering unbanked transit riders automated replenishment of fare value is in the best interests of both transit riders and the transit agencies. The ability of smart card programs to offer customer-friendly and cost-effective approaches to serving unbanked transit riders will partially determine whether such programs succeed. If the programs are unsuccessful in reaching the unbanked rider market segment, transit agencies will find it difficult to eliminate legacy fare collection systems. And if the cost of reaching this market segment is too high, transit agencies will not be able to reap the full benefits of new smart card-based AFC systems.

How Smart Card-Based AFC Programs Currently Work to Serve Unbanked Transit Riders

As transit agencies launch or plan to launch new smart card-based AFC systems, three questions are key to serving unbanked transit riders:

  1. How big is this market segment?
  2. Where is this market segment located?
  3. Is this market segment large enough to necessitate specific solutions for distribution of smart cards and the value loaded onto the smart cards? This question has policy and political ramifications for public agencies.

Serving unbanked transit riders involves issues both when the card is initially sold and during the life of the card, when additional fare value is sold. In most cases, the smart cards are reloadable, which means the initial card sale presents a one-time challenge, but selling additional fare value is an ongoing challenge. To date, many transit agencies are continuing to depend on traditional approaches for vending fare media to serve both banked and unbanked riders. In other words, while the programs attempt to maximize the advantages of the smart card technology through features like autoloading and online sales of cards and fare value, they still invest heavily in more traditional fare media sales channels, such as in-station vending machines and retail sales outlets. Several of the programs also allow cardholders to add value at fare boxes. In nearly all cases, it is more expensive to establish and operate the traditional fare media sales channels than to establish and operate self-serve vending machines or the autoload feature.

Card sales issues include both initial access to the cards and the $5 fee that most agencies charge for the smart cards. To address these issues, some agencies have pursued aggressive sales tactics to ensure adoption of the cards by a broad audience of riders. For example, Boston’s transit agency gave away more than one million free CharlieCards at transit stations as part of the program launch, and free distribution continues to date. In the San Francisco Bay Area, transit agencies are planning targeted card giveaway promotions in locales where unbanked transit riders are likely to be concentrated.

For regions without an extensive rail network (and therefore without an extensive network of current transit agency-managed sales locations), retail sales networks are particularly important to ensuring wide availability of smart cards and fare value. Establishing a sales network that not only sells smart cards but also sells fare value typically involves deploying a stand-alone POS terminal that can add value to the smart card. But deployment of these terminals involves issues such as cost (hardware, training, and sales commission), maintenance, training, and the time to complete an individual transaction, which usually exceeds the amount of time it takes to vend a traditional transit pass because a clerk must use a terminal to select the amount to be added to the smart card.

Table 2 lists the POS networks that support currently operating transit smart card programs.

Table 2. POS Networks Currently Supporting Transit Smart Card Programs

Program Name Service Area Number of Current Sales Outlets Number of Planned Sales Outlets Card Sales at Retail Outlets Reload Capability at Retail Outlets Cost of Card to Consumer
Breeze Atlanta 7 with 16 devices 7 with 16 devices Yes Yes $5
CharlieCard Boston 170 500 Yes Yes Free
Chicago Card Chicago 49 65 Yes Yes Free with registration, otherwise $5
Q Card Houston 450 52 Yes Yes Free
ORCA Seattle 220* 140 TBD Yes Free during ‘conversion’ period; afterwards $5 for full fare, $3 for senior and disabled, or $1 for disposable
SmarTrip Washington, D.C. 0* 500 Yes Yes $5
TAP Los Angeles 600+ 500+ Yes Yes Free
TransLink San Francisco Bay Area 80 400 Yes Yes $5

*None of these sales outlets currently have POS capabilities for any smart card-related activities. However, they do currently sell magnetic stripe fare media.

Another approach to reaching this market is through partnerships with social services agencies that distribute transportation benefits to their program participants. Historically, these programs have given away passes and tickets or sold them for less than face value. Partnership opportunities are available with a smart card-based AFC system, but establishing and managing these relationships introduce issues that are similar to those involved in managing retail networks, such as recruitment, contract negotiation, billing, and inventory management. Having to address and manage each of these issues potentially diminishes the benefits of implementing a smart card-based AFC system.

Implementing a Point-of-Sale Network to Support a Smart Card-Based AFC Program in the San Francisco Bay Area and Washington, DC

POS Network Deployment in the San Francisco Bay Area. The Metropolitan Transportation Commission (MTC) contract for the Bay Area’s TransLink program requires the contractor to establish and manage a network of 400 sales outlets. The contractor’s responsibilities include recruiting the sales outlets, collecting revenue, negotiating a sales commission, installing hardware, training personnel, tracking inventory, and performing technical support. (Historically, each local transit agency established relationships with sales outlets, and the transit agency negotiated commission rates, supplied inventory, and performed all similar functions.)

During the initial phase, TransLink is being implemented in two of the 24 agencies that will eventually accept the TransLink card. The participating transit agencies regard the presence of a conveniently accessible sales network as a critical factor that is key to ensuring broad access to the new smart card. Throughout this phase, the execution of the POS network requirement has posed a number of challenges:

  • Convincing stores to participate in the new program, which currently has little brand recognition.
  • Resolving the differences between the commission rates that Bay Area transit agencies currently pay sales outlets relative to the rate offered by the TransLink program.
  • Requiring that participating stores install a TransLink-specific POS terminal. In the past, stores simply kept transit passes in a register or behind a customer service center.
    Convincing sales outlets to settle financial transactions daily, which is a cornerstone of the overall TransLink system.
  • Training employees at participating stores to use the TransLink-specific POS terminal and having the employees remember the training information.

As the two agencies currently operating TransLink (AC Transit and Golden Gate Transit and Ferry) approached the TransLink revenue-ready milestone in late 2006, both agencies raised significant concerns about the sparse geographic coverage offered by participating sales outlets and the difficulty that the program was facing in recruiting a region-wide retailer (i.e., a retailer with more than 100 local locations) to serve as a TransLink sales outlet. Similar issues arose in late 2007 as the agencies shifted from the initial “soft launch,” with little marketing to support TransLink, to a more aggressive marketing program. Both agencies expressed concern that transit riders would not be able to access the card and its benefits reliably without excellent geographic coverage and an immediately recognizable region-wide retailer.

At both points in the program’s introduction (the revenue-ready milestone and the transition to more aggressive marketing), the participating transit agencies made the decision to move forward contingent upon the contractor’s ability to address concerns about the POS network. Addressing the concerns of the transit agencies has required several concessions:

  • Offering financial incentives to sales outlets in some geographic areas
  • Allowing some sales outlets to settle transactions less frequently than daily

Since November 2006, when TransLink began operating on the two agencies, most cardholders have purchased cards directly from the TransLink customer service center using the TransLink website or the phone center. The second most common channel for card acquisition are through the ticket offices operated by the participating transit agencies. It is not yet clear whether this is due to the perceived ease of contacting the customer service center, the coverage offered by the sales network, or both.

POS Network Deployment in Washington, DC / Baltimore, MD. The Washington Metropolitan Area Transit Authority (WMATA) program to deploy a POS network as part of the SmarTrip Regional Customer Service Center (RCSC) for the greater Washington, D.C./Baltimore, MD geographic area requires the contractor to design, develop, and deploy a network consisting of approximately 300 target locations with expansion capabilities to 500 possible locations. This network will use WMATA-provided POS devices developed by a different contractor. Once the network is deployed, the contract requires the contractor to operate and maintain the network, performing activities similar to those required by the Bay Area’s TransLink project (e.g., recruit sales outlets, collect revenue, negotiate sales commissions, install hardware, train personnel, track inventory, and perform technical support).

The RCSC POS network has experienced deployment problems that are somewhat different than those experienced by the TransLink project. The WMATA challenges in deployment include:

  • The POS device itself handles analog communications only. Several of the convenience or grocery store chains no longer have either the infrastructure or the equipment to support analog communications.
  • WMATA currently does not allow existing sales outlets to charge commission rates or transaction fees. The contractor believes this will have a negative effect on the process of recruiting sales locations.
  • Participating stores are required to install the POS device on a countertop at the merchant location using anti-theft hardware.
  • Sales outlets must agree to routine financial settlement of transactions on a scheduled basis that has been established as a part of the Regional SmarTrip System.
  • Employees at participating stores must be trained to use the WMATA-provided POS device. All devices in the POS network are attended devices.

In addition, a recent WMATA fare increase and “soft push” strategy to get SmarTrip cards into bus-only customers’ hands have generated a need to deploy the POS network into some of the financially challenged areas within the District of Columbia. This is because the WMATA Regional SmarTrip System has not yet deployed the smart card autoload capabilities. These are areas and customers with no readily available means of loading value to their SmarTrip cards. They therefore require POS devices. This shift in priorities for the deployment of the POS network has changed the established POS network installation schedule significantly.

Cost Factors and Economic Case for Transit Agencies

The reasons driving transit agencies to implement smart card-based AFC systems include anticipated reductions in operating costs, lower maintenance costs for AFC equipment, increased convenience for customers, and faster boarding. The autoload feature offered by most programs includes additional advantages:

  • Autoload requires no transit agency staff intervention once the autoload feature on a card is enabled.
  • Autoload requires no special equipment such as vending machines or countertop POS terminals.
  • The transaction occurs as a patron pays a fare, which means the patron never needs to separately add value.
  • Autoload minimizes the possibility that a patron will have an insufficient fare that slows the boarding process.

Managing a POS network is expensive, labor-intensive, and less convenient for patrons. While each smart card program has a different cost structure, managing a POS network typically includes some of the following cost factors:

  • A sales commission paid to the retailer
  • Installation and monthly servicing fees paid to the implementation contractor (if management of the location is outsourced by a transit agency) or staff costs for similar services (if the transit agency manages the POS network on its own)
  • Costs associated with training the retailer’s staff
  • Procurement and maintenance of equipment

A POS network that can load virtually any type of transit product to a smart card at a POS device in return for cash paid to the merchant offers definite advantages for unbanked customers. Any transit agency considering deployment of a POS network should conduct a comprehensive return-on-investment analysis. The agency will need to understand the real costs of deploying, operating, and maintaining a POS network and identify whether using such a network represents savings over more standard means of serving unbanked transit customers, such as prepaid cards. The transit agency’s costs, especially for some of the small to mid-size agencies, could make the cost of deploying a POS network prohibitive. The combination of this cost with the customer convenience inherent in being able to load value onto a smart card may make prepaid cards an appealing option.

Lessons Learned

As provisioners of public services, transit agencies are committed to serving transit riders regardless of whether the riders have bank accounts. Unbanked transit riders may comprise a significant portion of overall transit ridership. MTC’s analysis of Bay Area transit riders in low and middle-income areas found that about 70,000 households in these areas include residents who both ride transit and do not have bank accounts. The Bay Area has about 1.5 million transit boardings per day.

Thus far, transit agencies have invested in POS networks as the primary means for ensuring access to smart cards and fare value for people who choose to use cash and for unbanked persons who cannot utilize autoload features. The implementation and management of the POS networks is challenging, from financial, political, technical and operational perspectives. However, until some alternatives are in place, transit agencies generally cannot operate a smart card-based AFC system without this type of a sales network.

As agencies strive to minimize cash payments by modernizing their legacy fare payment systems, the success of the POS network is essential to offering a modern alternative to cash using riders, for creating public acceptance of the smart card and providing comfort among policy boards.