Canada's ambitious transit payments transformation

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Despite Canada's high penetration of contactless POS terminals and consumer affinity for the technology, the country has lagged behind nations such as the U.K. and Singapore in contactless payments. That is set to change as Canada's transit schemes launch contactless open-payment systems.

On May 22, 2018, Vancouver, British Columbia will become the first Canadian city to commercially launch a contactless open-payment transit system. It follows a trial in Laval, Quebec of contactless Visa and Mastercard credit card payments for bus rides.

In other regions, transit systems have proven to be compelling venues for adopting new payment technology. Such systems are demanding — they must handle high volumes of commuters without creating bottlenecks at the turnstiles — while also having an attached network of stores and newsstands that may be willing to accept payments from the same contactless fare systems.

“With wide contactless card adoption, openness to new technologies and high numbers of international visitors, Canadian cities are ideally positioned for open-loop transit systems,” said Iain McLean, Mastercard Canada’s senior vice president of Canada Market Development. “We’re seeing more and more Canadian cities begin to embrace contactless payments on open-loop systems.”

Launched in April 2017, the Laval project involves Société de Transport de Laval deploying Monetico contactless readers provided by Quebec-based cooperative group Desjardins on its buses. The Laval pilot has proved a big hit with consumers, Louis-Martin Fournier, a product manager at Desjardins, said in an op-ed piece. STL now plans to roll out the contactless readers on all its buses.

Toronto, Edmonton and Ottawa plan to migrate to contactless open transit payments over the next few years, according to McLean.

Transit systems typically involve different stakeholders, including those who aren’t part of the payments industry — and each participant has different priorities and political agendas. But offering open-payments alongside closed-loop transit cards provides enough flexibility to appeal to consumers.

Riders on TransLink trains and buses in the Metro Vancouver area will be able to tap contactless Mastercard and Visa credit cards or use Apple Pay, Google Pay and Samsung Pay wallets containing Mastercard and Visa cards at the transit authority’s fare gates. Currently, only TransLink’s Compass reloadable prepaid transit card is accepted at the fare gates.

“Tap to Pay will provide new, convenient payment methods for customers without Compass cards, so we expect it to be well received,” said Chris Bryan, TransLink's senior media relations advisor. “The feature will be convenient for tourists and infrequent riders who are unfamiliar with our fares and zone system — they can tap and ride, without having to line up for tickets. But the majority of our customers will still use Compass to enjoy the discounts available on the cards.”

TransLink rolled out Compass cards in 2015 and 2016, partnering with Cubic Transportation Systems, which also provided the Tap to Pay open-loop functionality for Compass fare gates. TransLink got Cubic to build Tap to Pay functionality into its initial design for Compass.

“There are over 2 million Compass Cards in circulation, of which 1.26 million are active, meaning they were used in the last 90 days,” said Bryan. “Over the last year, we’ve been testing the Tap to Pay functionality and preparing a customer-education campaign to ensure a smooth transition for customers. “

TransLink plans to accept Interac Flash-based contactless debit cards in the future, and is exploring the option of developing a virtual Compass Card.

Interac Flash is the contactless application for Interac, Canada's domestic debit network. It is available both for plastic Interac debit cards and for mobile wallets.

Transit schemes need to be able to accept debit cards, as Canadians are heavy debit users. Interac says the number of Interac domestic debit transactions rose to nearly 5.8 billion in 2017 from 5.4 billion in 2016.

“We believe mass transit represents an important opportunity for the future growth of Interac Flash and contactless payments,” said Martin Ho, Interac’s head of core products. “We’ve been in dialogue with Canadian financial institutions, transit authorities and acquirers to determine our approach and appropriate participation.”

The Greater Toronto Area’s Metrolinx transit system has announced plans to launch a mobile app for its Presto contactless reloadable card, enabling riders to pay by tapping their phones. “We’re still pursuing open payments, but are prioritizing development of Presto Mobile,” said Suniya Kukaswadia, senior advisor for media relations and issues management, at Metrolinx.

Presto mobile will be developed in phases. “We’re currently in the early development stages and haven’t finalized release dates yet,” said Kukaswadia. “By our current estimates, we’re targeting to release the first phase of the app by the end of this year.

The first version of the app will allow customers to load funds and passes onto their Presto cards directly from their debit or credit cards, or through Apple Pay or Google Pay. They will also be able to see their balances and trip history.

On NFC-enabled Android phones, once funds and passes have been purchased, customers will be able to immediately deliver the value to their Presto card by tapping it on the back of their phone. This will eliminate the wait time customers currently experience for funds loaded through the Internet.

Metrolinx also wants to integrate with Apple Pay, and is currently in the process of negotiating with Apple to enable the Presto virtual card to be loaded as a mobile payment mechanism within Apple Pay, said Kukaswadia.

Christie Christelis, president of Canadian consultancy Technology Strategies International, says Metrolinx will eventually adopt open payments, but not in the next few years.

“There are too many business issues that they have to address, such as forcing the obsolescence of the current Presto system,” he said. “However, it would be fairly trivial to implement from a technology perspective.”

An issue that TransLink has highlighted in its publicity for Tap to Pay is the risk of ‘card clash,’ caused by customers failing to tap only the card they want charged, and instead tapping a wallet containing multiple cards. If a customer presents more than one card to a card reader, the system will charge the first card it detects, which may not be the one the customer intended for payment, it warns.

“Our view is that card clash is a consumer education issue for Compass users who are used to leaving their Compass card in their wallet when they tap to ride,” said Brian Weiner, vice president and head of product, Visa Canada. “Consumers should pull their preferred card out of their wallet when they tap, just as when making a purchase in stores. The reality is that most consumers are very familiar with that experience.”

Weiner says Canada is a “fantastic” market for contactless payments. According to VisaNet, as of March 2018, around 52% of Visa Canada point-of-sale transactions were contactless payWave transactions.

“The rollout of open contactless transit payments will increase the growth trajectory for contactless and mobile payments across Canada,” says Weiner. “This is what happened in London, U.K., where Transport for London’s (TfL) move to open contactless payments led to them becoming the worldwide gold standard for transit and proved a catalyst for the adoption of contactless payments across the U.K.”

This year, TfL surpassed one billion journeys paid with Visa contactless cards, according to Visa. TfL says that half of all London Underground and rail pay-as-you-go journeys are now regularly made using contactless cards or mobile devices.

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Contactless payments NFC Mobile payments Payment cards Interac Mastercard Visa Canada U.K. Singapore U.S.