As we have discussed in this series of transit articles, open-loop transit systems are becoming increasingly popular around the world as an efficient way to reduce traffic congestion and promote a green lifestyle. However, with modern technology comes a certain level of risk that must be managed by both riders and service providers. This article will discuss the potential risks associated with open-loop transit systems, how to manage debt recovery and the importance of fare capping.
There are several models for open-loop transit ticketing, in this article, we are focussed on Account-Based tap-and-go systems, where riders can use unregistered bank-issued contactless cards to access and pay for their travel. Please see our earlier articles for background and details of other operational models.
Fare capping is a concept that is gaining popularity in the world of open-loop transit. It refers to the practice of placing a cap on the amount that riders can be charged for their trips over a certain period, usually a day or week. This means that once riders have reached the cap, they will not be charged any further for their travel.
The calculation is carried out at the end of each business day, all travel over the period to be capped is analysed for each individual rider and the best fare is calculated as if they had bought the best possible ticket at the start of the period.
Capping can be applied in many ways, for example:
- Time- Based
- Return Tickets
- Discounts across several operators within one ticketing system
- Loyalty discounts
When specifying open-loop systems, careful consideration needs to be given to what caps will be applied to what fares, as retrofitting caps into single or multi-operator scheme can be problematic.
For riders, it gives an incentive to use public transportation, as they know the fare change will be no more than the least cost ticket.
First Ride Risk
There has been much debate about the First Ride Risk (FFR) in open-loop transit systems. This debate circles around the problem when an unregistered rider accesses the transit system with a card with insufficient funds to pay for their travel.
Transit systems require a fast through put of riders at stations, with insufficient time to verify every rider’s card balance every time they travel. This leads to an inherent risk where a rider is traveling without financial verification.
So, who takes this risk? There are two obvious parties: the transit operator and the card issuer. As we have discussed in an earlier article, this risk is usually shared between these parties.
The negotiation of how this risk is shared between these parties, and potentially other players in the eco-system is critical in commercial discussions of any transit operator.
When a rider is found to have insufficient funds to pay for their travel, the transit operator needs to prohibit them from further travel. This is managed by a deny list of (tokenised) card numbers that are no longer allowed to travel on the system.
When a rider is found to have insufficient funds to pay for their travel, the transit operator needs to prohibit them from further travel. This is managed by a deny list of (encrypted tokenised) card numbers that are no longer allowed to travel on the system.
When a rider is refused entry to the system, it is often because they believe that their card is in a good state and has enough funds to pay for their travel, despite having failed to pay for travel in the past. This leads to a situation that can be both embarrassing for the rider and difficult for station or on-vehicle staff to explain and navigate.
Riders who owe a debt to the transit operator will have their card included on the deny list and will not be able to use it for travel.
There are several methods of debt recovery, including using the card details from a deny listed tap, periodic retries in the back-end system, and manual payment of the debt. In all cases, once the debt has been paid, the rider’s card will be removed from the deny list and they will be able to tap on and travel.
Fortunately, debt recovery is successful in most cases. However, transit operators we have spoken to find the cost of debt recovery can be quite high.
Performing revenue inspection is similar to the process today, where uniformed revenue inspectors tap the card used for travel on a handheld validator. With open-loop contactless cards, the card data can be checked against a list of cards that have been used to tap-on to the system, or a check can be made against the back-end system to confirm the card’s status.
Should the card be found to have not been used to tap-on and/or to be on the deny list, then proper action can be taken, by the revenue inspectors. As we have discussed often the issue is that the rider believed they had funds to travel, did not understand that they were on a deny list and they previously did not pay for travel.
To make an informed decision, the Revenue Inspector needs to have visibility of earlier transactions and both successful and unsuccessful attempts to tap-on and tap-off from the system.
Open-loop transit is becoming more popular as a travel solution, but operators must be mindful of the financial risks and have proper mitigations to ensure they are protecting their revenue and providing a secure and reliable service with the users.
It is important to fully understand and balance the usage of up-front and informed validation methods, which we discussed in earlier articles, with the complexity of fare capping periods and debt recovery processes.
If you want to know more about balancing and managing all these aspects, you may browse through earlier articles about transit payments or contact us to discuss how we can help you further.
Authors: David Lunt, Technical Director, Melbourne & Eugene Lishak, Senior Business Systems Consultant, Toronto, Payments Consulting Network
David and Eugene have worked on ticketing systems since 2011 and 2008 respectively. They both bring a wealth of knowledge to the Payments Consulting Network on this topic.
This is part of a series of transit ticketing articles.
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