One of the most powerful forces that can help drive contactless payments acceptance forward is mass transit, particularly open-payment systems where riders tap to pay at turnstiles with their own payment cards and devices, bypassing the need for proprietary fare cards.

Such moves with open-loop fare systems in London and Singapore contributed to surges in contactless payment volume as consumers grasped the convenience and issuers and merchants clambered aboard to support it, helping overall usage of tap-to-pay cards and devices. But while transit systems are a vital part of a contactless ecosystem, they are still just one factor.

The U.S. and Canada are far behind Europe and Asia in contactless adoption in general. A handful of mass transit agencies are stirring hopes about NFC fare payments, but even these cities are taking a cautious approach to open-loop payments.

New York MTA subway
Bloomberg News

New York City’s Metropolitan Transportation Authority this month announced a $573 million project to introduce open payments beginning next year so riders can tap to pay with an NFC-enabled card or phone, aiming to gradually phase out the current reloadable proprietary MetroCard by 2023.

“We’re starting to see some interesting action in cities going to next-generation payments including Vancouver, New York, Seattle, Philadelphia and San Francisco, where some of these are finally moving to support acceptance for contactless, bank-issued open-loop cards, which could be a catalyst for other markets,” said Peter Qaudagno, a West Chester, Penn.-based payments consultant who has worked with transit authorities.

The mass-transit operator in Vancouver is working with Cubic Transportation Systems to roll out open-loop payments early next year enabling consumers to pay fares with a contactless payment card or mobile app at all fare gates and buses, said Mark Langmead, director of Vancouver's TransLink Compass Operations. (Cubic also won the contract for New York's fare-payment upgrade.)

In Seattle, a coalition of seven regional mass-transit agencies in August put out bids for a systems integrator to upgrade its Orca closed-loop fare system, which currently operates like a lot of existing U.S. transit systems with a proprietary contactless card enabling riders to add funds online and via kiosks, an approach experts say is often costly to operate and increasingly outdated.

While Seattle hasn’t committed to an open-loop fare system yet, it’s looking to adopt the the most advanced technology available, said Brittany Esdaile, program manager for Orca’s next generation.

“We’re definitely moving toward an account-based system, and we like having the ability of paying via NFC with a mobile phone but we’re still determining if or when we roll out open-loop payments … it could depend on which way the industry goes, which flavor of mobile payments we ultimately adopt,” Esdaile said.

San Francisco’s Metropolitan Transportation Commission last month announced plans to develop the next generation of its closed-loop contactless Clipper card, with a proposal for an account-based system to process credit and debit transactions with the potential to eventually support NFC-based mobile payments.

While it may seem surprising that commuters in the region closest to Silicon Valley's hotbed or payments technology still can’t use their phones to ride local trains and buses, the daunting task will require coordinating 22 different regional transit operators over a vast geographical area, Quadagno said.

“It can be extremely complex, but mass transit adoption of mobile payments can be a big plus for driving contactless payments, because consumers get used to tapping to pay with a card or a device and it creates an environment that motivates issuers and merchants to get on board,” Quadagno said.

But mass transit alone can’t spontaneously ignite demand for contactless payments, for several reasons.

Most existing NFC-based open payment systems for mass transit are fast and convenient for riders, but typically they don’t provide for free or discounted transfers or multiple trips, so mobile payment users pay full price in cities like Chicago and Salt Lake City.

U.S. cities whose mass-transit systems currently accept open-loop payments, including Salt Lake City and Chicago, haven’t seen a huge uptick in contactless usage.

“Consumers aren’t necessarily taking the open-loop contactless use case in transit and demanding to use it elsewhere, as it's only one factor drives an ecosystem for contactless,” Quadagno said.

What's likely to happen in the next few years is more mass transit authorities will begin to support open-loop payments, alongside proprietary and closed-loop systems that enable more multiple- and short-trip discounts and other unique features, he forecasts.

“It will likely take broad movement for the entire payments ecosystem to drive contactless payments acceptance forward, but getting transit agencies on board with contactless has been a linchpin of the concept’s adoption in many other markets,” said Rod Reef, an independent payments consultant in Larchmont, N.Y.

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