WMATA SmarTrip imbroglio: open payment is not the solution

Note: This post was written before WMATA released detailed information on its New Electronic Payments Program, the open payment initiative for Metrorail and Metrobus. As such, it is based on certain assumptions which were not borne out, and is no longer entirely correct. For up-to-date information on WMATA’s open payment initiative, please see posts on this site about the New Electronic Payments Program.

The SmarTrip imbroglio has worsened. Based on TBD’s report from the last WMATA Board meeting, it looks like WMATA’s solution to Cubic’s discontinuance of the GO CARD (the smart card used by SmarTrip) is to abandon SmarTrip at some point in the future in favor of an open payment system. In short, open payment refers to the use of contactless credit and debit cards (like MasterCard PayPass and Visa payWave) for fare payment, and it’s something which WMATA has shown interest in since June 2009. As I’ve said before, there is no reason to abandon SmarTrip, and there is good precedent for migrating a transit smart card from one platform to another.

There’s nothing inherently wrong with open payment; the problem comes when there is no alternative (such as a stored-value smart card like SmarTrip) to open payment, other than using cash. In fact, I think that open payment systems provide a great alternative for infrequent riders or visitors—all they need to do is tap their credit card and get on. But there are issues with open payment, particularly when it’s the only alternative to cash:

  • Increased infrastructure complexity: With existing infrastructure designed around stored-value farecards (whether contactless or not), only the ticket vending machines handle credit card data, and therefore they are the only part of the system which must deal with the complexities of PCI DSS compliance. Once every faregate and bus farebox is processing credit card transactions, the complexity of the system goes up substantially.
  • Maturity of technology: Contactless smart cards for transit applications have been around for more than a decade now, and are a well-developed and mature technology. On the other hand, while I have a handful of credit and debit cards, only one supports contactless payments, and even then that card only works for contactless payment intermittently. Of course, this is only anecdotal—but it seems as though the market penetration of contactless credit and debit cards is poor, and not getting much better. As immature as contactless credit and debit cards may be, open payment systems for transit are even more immature; while open payment has become an industry buzzword, I’m not aware of any system which has actually completed a full deployment of open payment. The largest trial I’m aware of is the tri-agency trial being conducted in New York and New Jersey by PATH, NJ Transit, and MTA New York City Transit, which follows a smaller trial begun in 2006, which involved a limited number of subway stations, and which only supported MasterCard PayPass cards issued by Citi. The current tri-agency trial now supports all MasterCard PayPass and Visa payWave cards, but not American Express ExpressPay or Discover Zip.
  • Loss of flexibility: Right now, I can refill my SmarTrip card with cash, any credit or debit card, or (if offered) SmartBenefits from my employer. A contactless credit or debit card offers none of that flexibility. It’s important to remember that while Metrorail users can fall back on paper farecards (for as long as WMATA continues issuing paper farecards), for bus users there’s no other alternative besides exact change (even though our existing bus fareboxes can process magnetic strip cards). If WMATA dumps SmarTrip in favor of open payment, and you (for whatever reason) choose not to use open payment, get ready to start carrying around a lot of change, if you ride the bus.
  • Disenfranchisement of underbanked individuals: Then there’s the matter of the so-called underbanked, individuals whose access to traditional financial services (which would include credit and debit cards) is limited. The oft-repeated answer with respect to open payment is that anyone who does not have a credit or debit card supported by the open payment system can buy a prepaid debit card, load it with cash, and use that card to pay their fare. But there are hurdles, both legal and practical, with that approach. The first is that it shifts the burden from the transit authority to some third-party company or group of companies, none of whom are under any obligation to offer a card to any given individual. Worse, potential riders must now agree to the card issuer’s terms and conditions in order to use the card (and thus the transit system), whereas now the only parties to the transaction are the rider and the transit authority. On a practical level, prepaid debit cards are not as perfect as they appear; they are in fact an unregulated maze of fees and hidden conditions similar to other predatory financial products like payday loans.
  • Potential for increased costs: While I don’t know what pricing models credit card networks are planning to use for open payment, there’s a real risk that if every boarding results in a credit card transaction, that could add up to a lot of fees for the transit authority—which they would most likely then pass on to riders in the form of a fare increase—and these fees would apply even when riders buy a prepaid debit card with cash and then use it to pay their fare.
  • Development of regional infrastructure: With MTA Maryland having just recently launched the CharmCard (their branded version of SmarTrip), I cannot imagine that they would look forward to finding that a program that took them years to launch (although that says something about how things are run at MTA Maryland) would be obsolete in the near future. Because WMATA manages the contract with Cubic for operation of the SmarTrip RCSC, all of the other transit systems that accept SmarTrip are beholden to the decisions made by WMATA as to the future of the SmarTrip program.

As long as open payment is offered as an alternative to, rather than a replacement for, an existing stored-value card, these concerns are not serious. Riders who need the flexibility of a stored-value card can continue to use one, while infrequent riders who benefit from the convenience of open payment can use their contactless credit or debit card. However, intending to replace an existing stored-value card with an open payment system is not a solution. It’s even worse in this case because WMATA believes that they need to replace SmarTrip for reasons that are completely spurious—even with the GO CARD being discontinued, they could migrate SmarTrip to a new smart card platform, and potentially augment it with open payment in the future. A few weeks ago, when I introduced what I have come to refer to as the SmarTrip imbroglio, I said it was premature to start bashing WMATA. Now, though, WMATA has once again demonstrated miserable planning—open payment is not a replacement for SmarTrip—and an inability to resolve this situation in a sensible manner. If WMATA carries on with this approach without any changes, they will be making a sizable mistake.

One thought on “WMATA SmarTrip imbroglio: open payment is not the solution”

  1. You are right on point. Open payments(meaning bank cards) are not ready for prime time and frankly may never be. WMATA will be in the smart card business for the foreseeable future. As contactless technology evolves the FRAM technology used by Cubic will be supplanted by different contactless cards. Transit systems will need to provide Limited use (LU cards) such as the Atlanta Breeze Card or some other similar type of card perhaps a printed Kovio card to provide for occasional users. Most of transit continues to ignore the cost of credit/debit transactions which are very high and carry no economies of scale. Electronic delivery of benefits like WMATA Smartbenefits can be handled very cheaply and efficiently almost completely outside the banking system. Large transit systems can still handle cash more cheaply than credit/debit without the risks or exposure to PCI DSS.

Comments are closed.