Transit payments: a market in transformation

As the world recovers from the pandemic, users around the world are returning to public transit—and a transformation of how riders pay for these journeys is underway. PCM learns about the transformation of transit payments in partnership with Discover® Global Network (DGN).

Prior to the COVID-19 pandemic, travellers were increasingly choosing public transport—and now that trend is resuming. From the Americas and Europe to Asia and Africa, statistics consistently show not just an increase in total journeys made, but transit’s growing popularity as more people turn back to public transport.

Whether these increases are driven by convenience, environmental concerns or the relatively low cost of public transport, making consumer payments in transit smoother and more efficient has long been seen as critical to boost such vital regional and national infrastructure.

Recognising this need, major cities such as London (2003), New York (2006) and Los Angeles (2008) launched so-called ‘closed loop’ electronic payment systems to speed up ticketing, reduce cash handling costs and offer greater consumer convenience.

A ‘closed loop’ payment system essentially means the card used to purchase a journey works only for that specific transit system, versus the wider applicability of a standard payment method like a debit or credit card, or digital wallet.

“The introduction of electronic payments encouraged riders to make more journeys as they no longer needed cash to travel.”

Tim Dziubek, Director of Payment Products at Discover Global Network, says such ‘closed loop’ systems represented, at the time, an improvement on previous paper ticketing and cash payments. “Customers immediately found their travel experience was faster and more convenient”, he says.

In other words, the introduction of electronic payments encouraged riders to increasingly choose public transportation for their journeys as they no longer required cash to travel – in New York, for instance, the number of journeys rose from 3.37 billion to 3.8 billion between 2020 and 2021[1].



Despite this success, opportunities for agencies to increase convenience and access to their systems remained.  Customers still had to endure friction to procure and continuously fund these closed loop cards.

Agencies were also coming under increased pressure to reduce operating expenses. Open loop systems represent an evolution in electronic payments that further increases convenience and access: riders can skip the laborious process of pre-ordering, reloading, or managing an account with their local transit agency.  Armed with their usual payment card or digital device, customers can just show up, tap and ride.

Transit payments enter the open loop

The impetus, then, to add  ‘open loop’ contactless payment acceptance, where passengers can tap and pay with the credit and debit cards that were already in their wallets, stemmed from increased convenience and access.

This allowed passengers to pressures to reduce operating expenses, Dziubek says, as well as the need to further reduce cash handling costs and to promote greater consumer convenience. In an ‘open loop’ system, any payment method may be used by customers, from contactless credit and debit cards to digital wallets on mobile phones and wearable devices, such as watches and rings.

Discover® Global Network is supporting the move to contactless payments with its EMV-compliant smart card solution, known as D-PAS (Discover® D-Payment Application Specification).

However, Dziubek says the rapid evolution of contactless transactions—especially since the COVID-19 pandemic—has been pivotal: “The persistent growth of contactless transactions, as supported by financial institutions, merchants and mobile device manufacturers, has been a key factor in the switch to ‘open loop’ systems.

Since the start of the pandemic, we’ve seen contactless card present sales volume increase by more than 152% globally year on year from 2019 to 2020 globally. In addition, contactless card-present transactions increased 85%+ year over year from 2019 to 2020 globally.[2]”

“Since the start of the pandemic, we’ve seen the volume of card-present contactless transactions over the Discover system increase by more than 152%.”

Dziubek says he expects to see ‘closed’ and ‘open’ loop systems operating in parallel in the future. The ability to pay cash for access to a ‘closed loop’ such as London’s Oyster card ensures that unbanked and underbanked populations can continue to access public transport, while the broad acceptance of contactless payments via ‘open loops’ makes transit payments faster and easier for all.

“There’s been a lot of collaboration behind the scenes at Discover to enable contactless open loop systems”, Dziubek reveals. “Typically, we’ve been working with transit agencies and their developers on the acceptance of Discover products for open loops, which also involves making sure the lowest fares are provided to customers that ride multiple times per day, week or month.”

Looking ahead, Dziubek sees further advantages accruing to transit systems that switch to ‘open loop’ arrangements, including the capacity to use payment data to make smarter decisions about congestion and loading. Furthermore, ‘open loop’ systems allow for more flexible functionality to be added to transit payments, including loyalty points functions and special offers.

The convenience and benefits delivered by ‘open loop’ systems are expected to bring a new global payments standard throughout the sector for years to come. Worldwide, analysts were already predicting[3] that contactless payments for transit would grow by more than 10% CAGR from 2019 to 2024.

That growth is now expected to increase even further, and with 62 out of 75 major Asian cities using contactless payments for transit, Asia is set to take North America’s crown as the world’s contactless transit leader.

Wherever you travel in the years ahead, the advent of contactless payments in transit means you’ll no longer need to fumble for coins and notes, stand in queues or hunt for ticket offices as generations of travellers, both local and international, have done in the past. In the future, the device you use for all your other purchases will get you wherever you want to go.

To find out more about how Discover® Global Network is enabling the transformation of transit payments, visit: Discover Global Networks: Transit

[1] Data from Standard and Poors https://www.spglobal.com/marketintelligence/en/news-insights/trending/_7127EU5BPmzvAfnxH6iWg2 and New York Metro Transit Authority

[2] Source: internal data from Discover Financial Services

[3] See: https://lit-transit.com/insights/the-future-of-payments-in-public-transport/