Trends in technology and consumer demand are driving changes in urban mobility. Among them is the use of open-loop payment systems in public transport, which allow travellers to tap a contactless card or smartphone wallet on a terminal to enter in less than a second.
A general-purpose charge card, called an open-loop card, can be used anywhere if it is accepted by the account holder’s bank. Generally, it bears the logo of the brand or network that processes the actual transactions. If the card was issued by a financial institution, it would often show the name of the credit union or bank that issued the card. When a traveller arrives at their destination, they tap again, validating their trip, paying seamlessly for the service.
The following are a few insights into how open-loop payments may contribute to opportunities or pose some challenges. Here’s how:
What are the Opportunities of Open-loop Payments?
As the transport body is using a system already in the public’s hands and is moving away from a proprietary standard, there is an advantage for the organisation. Most commonly, contactless payments are made using bank cards provided by the customer’s bank. As a result, some of the costs of the bespoke proprietary solution are eliminated.
Another advantage of open-loop payments is that the ticketing solution becomes account-based. Regardless of anonymity or personalization, this can increase customer engagement and improve the customer experience. Having better trip data enables the Proficiency Testing provider to adapt existing services and then provide these services more efficiently.
What are the challenges of open-loop payments?
There are two main obstacles. To begin with, there are many challenges to building open-loop payment infrastructure that replaces old, outdated infrastructure.
Payment forms must be accepted by readers and processed by back-office software. These systems come with a cost, which is exacerbated by the incremental shift of customers to these payment methods. The legacy solutions must be supported during the change – meaning your cost savings can take some time to take effect.
Furthermore, a move to account-based systems may greatly alter the way that fares are calculated by Public Transport providers. If you were to switch to pay as you go (PAYG) instalments, you would have to implement a pay-as-you-go system or apply other methods to calculate transit fares, as customers would no longer be able to buy single tickets or period passes.
A disruption in open-loop payments creates a commercial risk as well as challenges from an operational standpoint, for example, potentially affecting boarding times. This will also impact existing commercial agreements in areas where you may be running a competing service. It is instead possible to establish one authority that can oversee a city or a large land area and make decisions, thereby eliminating many of the commercial negotiations.