Public transit is still reeling from pandemic impacts that left trains and buses mostly empty in 2020 and 2021. Recently, there’s been a push by transit authorities to consider open-loop payment systems that accept the rider’s preferred payment method, encouraging commuters or visitors to simply tap and ride with their debit card, credit card or digital wallet.
That’s certainly the case in Canada, where open-loop payment pilots centering on ubiquitous debit cards are seeing a spike in interest. Cities there and elsewhere are looking to replicate the open-loop payment successes of London and New York, recoup losses and raise ridership.
Andrew Yablonovsky, associate vice president of product strategy and growth at Interac, told PYMNTS that 67% of consumers the company surveyed would be likely to pay for transit by tapping their debit or credit cards if the option was available, illustrating the demand for this enhancement.
As Canada’s interbank debit network provider, Interac says contactless debit can play an important role in restoring ridership and financial health to transit.
“What’s exciting for us in Canada is that a majority of our transit agencies have also expressed a desire to introduce open payments as part of their fare collection strategies,” Yablonovsky told PYMNTS.
Pilots and regional implementations include Vancouver’s TransLink accepting credit card payments with contactless debit available soon.
Toronto-based Interac has the Metrolinx system in its backyard, which ran an open-loop pilot with its UP Express airport rail link in 2021. Given the benefits, Yablonovsky said he sees these pilots expanding further, noting that public transit systems are publicly funded as well.
“What open payments bring, once they’re integrated, is a significant saving to transit authorities, especially when compared to more expensive payment methods that hopefully will be less used as a result,” he said. “A good example that transit agencies often talk about is cash.”
Cash management and handling are costly, involving staffing ticket booths and maintaining automated ticket vending machines, to say nothing of the inefficiency of it all.
“What open-loop payments can do is lower the barriers to entry for transit by taking some of that friction out of the equation,” Yablonovsky said. “Why line up for a single-ticket ride or buy a pass or bring your transit card with you in your wallet? We can open access to transit for a population of users that today perhaps don’t even consider public transit as a viable option.”
See also: Digital, Real-Time Payments Will Unlock Efficiencies for Canadians
Debit and Transit a Natural Fit
While open-loop systems can accept a variety of payment cards, Yablonovsky said, “What’s important to acknowledge, and this is specifically true for Canada, is that debit is a natural fit in the transit environment, as 97% of Canadian adults have a debit card in their wallet and the majority of teenagers as well, whether that’s in their wallet or on their mobile phone.”
Combined with the fact that Interac has seen contactless debit go from 50% of transactions pre-pandemic to 70% today, Yablonovsky said he sees open-loop debit for transit payments as “a very compatible, user-centric experience. And of course, the limiting of high-touch interactions” that began with COVID still plays on riders’ fears during regular flu season.
Saying ridership has been climbing steadily — but slowly — this year, Yablonovsky said he believes offering open-loop payments can only help in this regard.
“It’s additive in this matter. You’re not taking anything away. You’re just giving people more options to pay,” he said.
London is perhaps the most mature market in open-loop transit payments, and he said open-loop payments now make up over 60% of total fare collection revenue in London’s system today, compared to a 50/50 split pre-pandemic.
“There’s a significant increase in total dollars that they’re realizing in revenue from open-loop payments, solidifying the point that there’s a positive customer experience associated with this option,” he said. “It couldn’t be [truer] than for folks like occasional riders and visitors to the cities who may not benefit from a monthly pass or something like that.”
Read also: Interac Marks 1B Annual eTransfers
Promising Early Days
Interac’s open-loop debit pilot with Toronto’s UP Express in 2021 may turn out to be pivotal, showing the potential of adding this payment option to transit systems throughout the nation.
Yablonovsky called that pilot “the culmination of a multiyear journey to bring this type of technology to market to make sure that Canadians had the option to use their debit cards. It involved more than just us, the payment network. It actually involved regulatory changes and technical changes that had to occur at all financial institutions in Canada.”
Saying that “in Canada, you could still call it the early days of opening up open-loop payments” for transit systems, Yablonovsky sees the potential for wider adoption in 2023 and beyond.
“Our primary role as a payment network is to provide the support necessary for transit agencies and their partners, of which there are many in the complicated ecosystem that is public transit,” he said. “We’ve been hyper-focused in that regard; we’re excited to see what’s to come.”
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