Visa Says Adoption of Open-Loop Transit Payments Is at a Tipping Point Worldwide

As transit systems move away from legacy payment methods like pay-as-you-go passes and toward contactless open-loop payments, it’s creating new commerce possibilities that not only benefit ridership and relieve urban congestion, but also promise greater financial inclusion.

A study from the Visa Economic Empowerment Institute (VEEI) titled “Reimagining Ridership: Open-loop Payments and the Future of Urban Mobility,” based on surveys of 75 transit agencies and 3,000 transit riders, reveals that the ability to use tap-and-ride open-loop systems increased ridership by one-third, giving relief to beset transit system largely unused in 2020 and 2021, which in the U.S. required tens of billions in federal funds infusions to keep them running.

In helping these systems recover — and the cities they serve with them — Visa Head of Urban Mobility Nick Mackie told PYMNTS, “When you make it easier to get on board with public transport, people take to it. It resonates with people when you make it as easy to get on board public transport as buying a coffee.”

He pointed to one stat from the VEEI study noting that 45% of those surveyed said they would take public transit more often if payments were seamless, requiring only the contactless card or mobile wallet they already use in everyday transactions.

“We’re at a tipping point,” he said. “This isn’t just a phenomenon in a few cities. Around the world, in over 650 different locations we’re seeing that people now expect increasingly to pay that way. The expectations are evolving.”

The study found that tap-to-ride increases ridership by nearly 10% on average, to which he said, “what else in the history of transportation has driven ridership by 10% where it pertains to just ticketing? This is significant, and we're relatively early in the journey. With our 650 locations that are live currently around the world, that could easily be 6,000 in a few years’ time.”

See also: Visa Tap-to-Pay Hits 1 Billion Transit Transactions as Systems Get Moving Again

Financial Inclusion Rides Along With Open-Loop Transit

As much as increases in ridership and corresponding decreases in back-end cash management benefit transit systems, there’s a strong financial inclusion element to this movement.

The vision is contactless payment methods that not only work for tap-and-ride but “that could be also used anywhere” as a digital or physical credential that’s reloaded using cash or a digital source and enables payments “wherever Visa is accepted,” he said.

“That wouldn’t just be bringing people on board with public transport. It would be helping people get on in life for those that maybe haven’t been included in the financial system.”

Efficiencies introduced by tap-to-ride for transit systems also help by alleviating back-office processing and cash-related costs making systems more streamlined from that perspective.

Mackie said transit agencies “can save a significant amount in terms of their ticketing overheads and costs, whether that’s cash handling or just driving efficiencies, streamlining passenger flows, and so on.”

The resulting rise in mass transit ridership can lower the use of private vehicles in congested urban areas, which he said “has a big impact on the livability and the sustainability of our cities.”

Use cases can move from subways, buses, and trams to multimodal transport like bikes and scooters which are now a common feature in most cities. That will evolve as card readers get smaller and require less power, making those integrations more cost-effective.

While Visa has no plans to create a standalone payment app for mass transit, many transit systems have their own apps already, and as open-loop payments scale, he said, “I’m sure the Googles and Apples at some point will probably weigh in on the MaaS world — or mobility as a service — through their mapping capabilities, for example.”

“Our role here is just to make sure we facilitate those flows and that the payment frameworks and the payment flows that we produce, whether it’s tap to pay or click to pay in the context of an app, are playing nice and are crystal clear from the consumer’s point of view.”

See also: Visa, MLG Collaborate on Contactless Transit in North Africa

The Coming Open-Loop Transit Wave

Transport for London (TfL) is the trailblazer in open-loop payments, but that project was about five years in the making before it went live. Mackie noted that now the foundational work is done, so cities looking at open-loop transit payments can now switch over in about 24 months.

VEEI found that 83% of surveyed transit agencies without open-loop systems today “plan to adopt them in the future,” and 70% of those expect to start implementations within two years.

“We’re living in a different world now,” Mackie said. “In most markets we have these technologies live. Visa acquiring partners that accept the payments, the issuing banks, are all on board with us in most markets around the world, and the tech partner community could not be richer.”

It’s a far cry from a decade ago when open-loop was an exotic mobility experiment. Mackie said there are currently 150 companies in the Visa Ready program with “70 or 80 solutions on the solutions directory.”

Visa’s job at this point moves from one of creating the payment technology to that of evangelizing the benefits to riders, systems, and cities of any size. Mackie stressed that open-loop payments are not just for the likes of New York and London, but anywhere that mass transit is in general use and in need of an upgrade, as well as the financial inclusion benefits envisioned as part of the uptake of these systems over time.