Vending machine companies aren’t the only ones concerned about how new debit interchange fees will affect small-ticket purchases. Transportation agencies moving toward contactless card or mobile-based payments for fares could certainly join that mix, considering many of their customers spend less than $10 per ride.

But Philadelphia, which is preparing to join the list of major U.S. cities accepting contactless network-branded cards and mobile payments for transportation fares, won’t have to worry about the effects of higher interchange fees.

The Southeastern Pennsylvania Transportation Authority signed a $122.2 million, three-year contract with Affiliated Computer Services Inc., or ACS, to convert the city’s transportation network to an open “tap-and-go” fare system (see story).

ACS will provide card readers and back-end payment systems designed to assist in lowering card-acceptance costs, including transaction aggregation, Michael Nash, senior vice president, transportation and local governments–Americas at ACS, a Xerox Corp. company, tells PaymentsSource.

When the Federal Reserve Board set the debit-interchange cap at about 24 cents per transaction under the Durbin amendment of the Dodd-Frank Act, it left banks issuing debit cards wondering how revenue would be affected. But new rates for small-ticket purchases actually rose (see story).

Despite the uncertainties about how debit interchange might affect small-fare charges, ACS and the transit authority received positive feedback from card issuers about supporting the initiative with contactless cards, Nash says.

Neither ACS nor the transit agency tried to determine how many contactless cards consumers Philadelphia already had because accurate numbers were unavailable, Nash says. With banks generally responding favorably about issuing cards, ACS estimates at least half of the riders on Philadelphia trains, subways or buses will possess contactless cards by the time the system is in place, he predicts.

Brian Riley, senior research director and analyst with Needham, Mass.-based TowerGroup, feels interchange rates will remain the bigger issue for banks or transit agencies dealing with smaller payments, not how many contactless cards are issued.

Most importantly, the transit agency plan helps “socialize contactless payments” by making it a more common part of consumer routines, Riley tells PaymentsSource.

Meantime, ACS will install its readers at subway station gates and close to bus driver seats, Nash says. Depending on the train station setup, ACS will install readers at gates or on depot platforms and supply conductors with handheld card and mobile readers, he adds.

The readers will accept any contactless cards with a computer chip imbedded, such as Visa Inc.’s payWave or MasterCard Worldwide’s PayPass, through radio frequency identification. In addition, the readers will have Near Field Communication capabilities to accept payments through smartphones, Nash explained. The agency would not have the capability to send messages to the NFC chip in the riders’ smart phones under the current system, but that option is being discussed, Nash adds.

Riders also may go to the transportation authority website to purchase a monthly pass and register a card number into the fare system, Nash says.

“Those who pay with a monthly pass would just tap the card on the reader the same way as someone just buying a single ticket, but the reader will know that cardholder has paid for a monthly pass,” Nash notes. Riders using smart phones will also be able to purchase a monthly pass because the “back office” of the ACS system will hold the transaction record and acknowledge it when the customer waves his phone near the reader.

Nash expects the number of contactless cards available to grow as the transit agency talks with various banks and processors to offer its prepaid cards for commuters, Nash adds. Also, ACS is working with the school districts in Philadelphia to establish contactless payments for transit as part of student ID cards, Nash says.

Moreover, the Delaware Valley Regional Planning Association plans to replace commuter benefit checks the company sends to employees with contactless transit cards, he adds.

Riley views the increased card availability as a significant positive for the ACS project.

“Having the schools convert the IDs into contactless transit fare cards is a great idea,” Riley says. “Moving more people over to digitized payments is the main focus here.”

The Philadelphia transit agency and ACS eventually may have to consider including the city’s taxi cabs in the contactless payment mix to secure “the whole package” of mass transit going contactless, Riley suggests.

“This is a new purchase for Xerox, so I am sure they will do everything they can to get it right,” Riley says.

Norwalk, Conn.-based Xerox Corp. announced Jan. 25 it was phasing out the ACS name for that sector of its company, but it will not affect the hardware installations, software development, maintenance and training Dallas, Texas-based ACS will perform with the Philadelphia project, Nash says.

Last fall, Chicago’s transportation authority inked a contract with Cubic Transportation Systems Inc. to begin converting the city’s public transportation network into an open fare-collection system accepting contactless cards and, eventually, smartphone payments (see story).

In addition, Google Inc. joined the payment arena for public transportation in partnering with the New Jersey Transit Agency to establish ticket sales through the Google Wallet using NFC technology at the station readers (see story).

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