Despite the huge enthusiasm around open-loop transit ticketing systems and many such projects worldwide, we can hardly say that open-loop is “taking the ticketing world by storm.” 

Open-loop has a nice-looking concept: tap your open-loop (Visa, Mastercard, etc.) card at a transit validator, and ride. 

Unfortunately, pure open-loop implementations do not exist. Even the most advanced and well-funded transit systems worldwide, which have invested billions in ticketing infrastructure, have achieved open-loop adoption rates of only 60% after more than a decade of development. The smaller transit operators may be satisfied with a 30% adoption rate. 

This article discusses the reasons for this and proposes a solution.

Problems with Open-Loop Implementation 

1. Unbanked Patrons 

Many transit patrons do not have bank accounts and prefer to use cash, whereas including unbanked populations is necessary. Consequently, the transit agency (TA) will need to issue closed-loop cards for these users and maintain the infrastructure for card distribution and cash top-ups. 

 2. Debit Cards

Another group of TA patrons has only debit cards. Despite many good intentions, open-loop systems that accept debit cards do not exist. There are many reasons for this, such as poor user experience for debit cardholders and risks associated with insufficient bank account balances. Like unbanked patrons, these debit cardholders will require closed-loop card distribution and top-up infrastructure.

Some open-loop ticketing projects promised debit card inclusion, but they seem to have forgotten these promises. We predicted this in our Payments Consulting Network’s Open-Loop ABT Costs – Tap Aggregation Payments Consulting Network’s article circa March 2023. 

3. Beware Card-Present Transactions 

In classic open-loop ticketing, any transit validator is essentially a card-present transaction point of sale (POS), which introduces various costs, such as:

• Payment Card Industry Data Security Standard (PCI DSS) compliance. 
• Acquiring processor fees, which are significantly higher for small transaction amounts. 
• EMV Level 2 certifications for card readers. 
• EMV Level 3 end-to-end certifications with payment processors (acquirers) for each payment scheme, such as Visa, Mastercard, etc. Practically, each new or updated combination of card reader, validator, account-based ticketing (ABT) system, and acquirer—including software and firmware for the aforementioned components—requires end-to-end testing. 
• Risks associated with card-present transactions. The potential cost of granting a free first ride may not be significant, but the complexity of recovering that cost can be substantial. The intricate regulations of payment schemes designed to mitigate this risk can make the logic of your ABT system and staff training more expensive. 

4. Universal Ticketing Agent 

All the aforementioned problems were noted more than a year ago in a series of Payments Consulting Network’s articles. Finally, an innovative concept and approach to open-loop transit ticketing named Universal Ticketing Agent (UniTiAg) was introduced. 
Since that time, the industry trends have not significantly changed. Transit agencies continue overinvesting and overpaying for classic open-loop solutions, whereas many of them may be satisfied with what UniTiAg offers. 

A year ago, UniTiAg was only a concept. Now, I am thrilled to announce that the UniTiAg SaaS is up and running, ready for integration tests with transit agencies and marketplaces. 

What UniTiAg Does 

UniTiAg introduces three key components: online marketplaces (also known as two-sided marketplaces, TSMPs), Open-To-Ride Balance (OTRB), and UniTiAg’s software-as-a-service (SaaS), which manages OTRBs and fare-related data. 

1. Marketplaces 

The marketplaces are fundamental to the UniTiAg system. Examples include PayPal, Amazon, or Uber—mentioned here purely for illustrative purposes, without implying any direct participation in UniTiAg.

Marketplaces have two types of customers:

• Sellers: These include transit agencies selling their trips, similar to how Uber’s drivers operate. 
• Shoppers: These are customers purchasing trips online. Payment can occur either after the service (like with Uber) or in advance (as with Amazon). 

UniTiAg transforms transit agencies into online sellers, allowing riders to pay for trips online using their credit or debit cards or bank accounts. 

2. Open-To-Ride Balance (OTRB) 

OTRB acts as “transit money” purchased online from the marketplace, enabling riders to use transit services up to their OTRB balance. Essentially, OTRB functions like a virtual closed-loop card, but transit operators do not need to issue physical cards or top them up. 

UniTiAg validators do not process payment transactions at the time of card tap. Instead, they verify that the tapped card is associated with an OTRBOTRB, and that sufficient balance exists for the trip. Upon tapping, the validator reports the fare to UniTiAg, which then updates the OTRB and propagates the updated balance across all validators before the card is tapped again. There is ample time to actualise the OTRB while the rider is on their trip. 

UniTiAg periodically communicates all fare applications to the marketplace, which reconciles transit agencies for the services provided, similar to how it handles other sellers. The marketplace also charges riders for the services and replenishes their OTRB. 
In essence, UniTiAg moves fare payments from the card-present contactless transaction realm to the card-not-present (CNP) realm. When the card is tapped at the validator, there is no payment transaction. 

3. UniTiAg in Essence 

UniTiAg does not sell transit rides and fares. Instead, it facilitates fare payments through patrons’ Open-to-Ride Balances (OTRBs), enabling transit agencies (TAs) to sell rides to their patrons via a common Two-Sided Marketplace (TSMP) infrastructure. 

The validator is no longer a Point-of-Sale (POS); it just registers the fare and reports it through the ticketing system to UniTiAg. The validator also validates the fare as it has the actual OTRB amount, which UniTiAg synchronises periodically with validators and ABT systems. 

4. Is UniTiAg Really an Open-Loop Solution? 

The answer to this question is in the hands of Two-Sided Marketplaces. If the most popular of them integrate UniTiAg and onboard transit agencies as sellers, they will open UniTiAg to open-loop credit, debit, and prepaid cardholders worldwide. 

Let’s compare classic-loop and UniTiAg solutions in the table below: 

5. Next to Read and Watch about UniTiAg 

UniTiAg architecture, principles of work, and APIs are fully documented here.

You can watch these introductory videos on UniTiAg channel on YouTube.

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Author: Eugene Lishak, Associate, Toronto, Payments Consulting Network.

Eugene is a payments specialist with over 40 years of hands-on BSA and software development experience including over 30 years of Business Analysis in Payments and Fintech​. Eugene assisted issuers and acquirers, processing centres, POS/ATM networks, and public transit fare collection systems​.

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