Open-Loop Fare Payments in Public Transit: Are They Really Open?

Open-loop fare payments are often touted as the panacea for public transit, promising streamlined operations and a superior passenger experience. However, when we delve deeper, the question arises: Are they truly as “open” as the terminology implies?

To begin with, the term “open-loop payments” in the context of public transport primarily refers to the acceptance of bank cards in public transport vehicles or at fare gates in metro or rail systems. This term is typically counterposed to “closed-loop systems” which utilize dedicated, contactless smartcards specific to a single public transportation network.

Interestingly, the core technical standards underpinning both closed and open-loop systems are practically identical. Yet, a clever play on words creates a perception bias - ‘open’ invariably evokes positive associations, while ‘closed’ leans towards the negative.

Let’s delve further to examine if open-loop payments are truly as ‘open’ as they seem.

Does the public transport industry, including transit systems, public transit agencies, and operators, establish the rules governing open-loop systems? The answer is no. These regulations are set by card networks. Although the EMV standard developed by card networks is technically open, it requires a lengthy, intricate certification process laden with numerous requirements.

Can the public transport industry influence, modify, or control card network fees? Again, no. These fees are determined by card networks and banks who also add their own charges for their services. So, if these fees were to significantly increase, it could lead to an urgent scramble to revert to cash payments or closed-loop systems.

In the event of a system failure or sudden operational cessation of the acquiring bank or processor, would a transit agency be able to swiftly switch to an alternative provider? In most cases, the answer is likely to be negative.

Fare capping and ‘account-based ticketing’ are gaining popularity, with sensitive information usually held by acquiring banks and card processors. However, sharing this information with a competing entity during a potential switch is highly unlikely.

Even upgrading to more modern and cost-effective equipment, such as validators, can become a laborious and costly endeavor if the bank uses a proprietary terminal protocol. Consequently, adopting better equipment may not always be feasible.

Alarmingly, open-loop systems may inadvertently lead to increased vendor lock-in situations, which invariably translates into higher costs and potentially lower quality.

Thus, open-loop fare payments can be more accurately defined as bank card payments in public transit, with its unique set of advantages and disadvantages.

Disclaimer: I was an early adopter of contactless bank payments in public transit, now cleverly termed as “open-loop payments”. However, I am disheartened when banks, card networks, and processors oversimplify the complexities of open-loop payments, projecting them as a magical solution to all public transit issues.

While they understandably have a financial stake in this matter, it is imperative to consider the long-term implications for public transport. Thorough analysis of all pros and cons should precede any drastic shifts in operational methodology. Perhaps, there are other ways to balance the interests of card networks, public transit agencies, operators, and passengers without resorting to sweeping changes.