From a policy perspective, transit authorities could make a call to pass through some or all of the costs of using a contactless debit/credit card.
Solely from a pricing perspective, the relevant metric here is how many trips a customer would need to make to justify the investment in a transit card over the ongoing use of a contactless card with (for example) a 10% transaction fee pass-through on each transaction — which would be at the high end of any pass-through.
Based on the lowest rail transit fare, the ‘payback volume’ associated with using a purchased transit card at current rates ranges between zero (Sydney) and 32 trips (Singapore). The key point here is that any resident (even a modest transit user) who wants to avoid any pass-through of charges for using open loop will readily meet the threshold point to justify purchasing a transit card in a relatively short period of time.
Concession fares
There has also been significant discussion around the merits of supporting concession fare payments on open loop contactless cards. There would not appear to be an overwhelmingly compelling case to do so assuming that a closed loop card remains part of the product suite. Concession fare entitlement management and fraud prevention are the key considerations.
Fare evasion
Finally, there continue to be concerns regarding the level of fraud in the use of digital wallets, referred to as ‘retokenisation’ or ‘card tumbling’. In effect, a customer takes advantage of a situation where the full authorisation of the transaction occurs overnight. The customer simply deletes the card from the digital wallet before the transaction is processed and then reloads the card, at which time it is allocated a new tokenised number and hence is not identified as a blacklisted’ token. Efforts are being made by some transit agencies to prevent the same card being loaded back into the digital wallet for a defined period, but it remains an issue of material concern to transit agencies.
Conclusion
There is compelling evidence that adult transit customers have embraced contactless open payments given the clear amenity benefits delivered by the product. However, any consideration of channel strategy must carefully balance a number of issues, including the COFC, the application of open payments to the concession market and addressing fare evasion concerns associated with the use of digital wallets for open payment.
Endnote
^We note that the legality of merchant service fees being levied by government to recover transaction fees levied by payment providers may vary from jurisdiction to jurisdiction
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