The Green Sheet Online Edition
August 25, 2008 • Issue 08:08:02
In transit with the unbanked
Editor's Note: This article first appeared in SellingPrepaid E-Magazine, Aug. 6, 2008, issue 08:08:A. For more information on the prepaid sphere, visit www.sellingprepaid.com.
In June 2008, the Smart Card Alliance published a white paper that argued for the role of prepaid cards in mass transit electronic fare systems as a way of including unbanked transit riders in the benefits of smart card technology.
According to Randy Vanderhoof, Executive Director at Smart Card Alliance, consumer advocacy groups raised concerns to major metropolitan transit authorities that contactless card systems, as an upgrade over paper-based and token-based fare systems, discriminated against unbanked consumers.
The unbanked, unlike consumers with traditional bank accounts, do not have access to debit or credit cards embedded with radio frequency identification (RFID) chips, which make payment cards contactless.
RFID-enabled cards can be tapped or waved at a reader on a bus, train or other form of mass transit.
But Smart Card Alliance, in its proposal entitled Serving Unbanked Consumers in the Transit Industry with Prepaid Cards, put forth prepaid cards enabled with smart card technology as a solution that would allow the unbanked to participate in contactless electronic fare systems. The benefits of contactless cards to transit riders are threefold, Vanderhoof said. They give transit riders the ability to:
- Load value on cards weekly or monthly
- Conveniently reload value on cards via self-service kiosks or over the Internet
- Eliminate the need to carry cash or change for fares
Prepaid cards work in a similar fashion to traditional debit cards, but funds are not tied to checking or savings accounts. Instead, amounts are loaded onto prepaid cards by cardholders at the POS, or by employers, for instance, issuing salaries via electronic payroll cards, rather than through paper-based checks.
Vanderhoof said prepaid payroll cards could also double as transit cards. "You could easily see a big employer in a major inner city want to extend that to their workers," he said. "Their workers are dealing with parking issues and traffic issues, so the business has interest in trying to get as many people as possible to use mass transit."
At least 12 major cities have instituted smart-card-based transit fare technology - in various stages of deployment from city to city, Vanderhoof said. Washington, Chicago, Atlanta and Boston already have fully operational contactless fare systems, he said. New York City is piloting an electronic fare system with cards issued by Citibank, a Citigroup Inc.-owned bank.
"Citibank is offering a credit card, a debit card or a prepaid card," Vanderhoof said. "An individual can either go into a branch, put money on their prepaid card, or make it take another credit card or debit card and load value on it. They're piloting to see how well that works in the system as well as what consumers prefer."
According to Vanderhoof, the bright future Smart Card Alliance envisions is one in which transit riders can use the open-loop, network-branded contactless bankcards they already employ in everyday life to also pay for transit fares in any city in the country. Instead of each fare system issuing its own, closed-loop cards that can be used only on that system, Vanderhoof expects smart cards will eventually break that model.
"Once the transportation operators upgrade their systems to accept these Visa-, MasterCard-, AmEx-branded cards, then they're in business to start accepting this payment medium form from anyone, not just people that are registered and signed up within that transit system," Vanderhoof said.
Through open-loop, network-branded prepaid cards, the unbanked can partake of this transit fare revolution. But so can ISOs and merchant level salespeople.
"It's a piggyback effect, right?" Vanderhoof said. "As the transportation industry moves to these more capable, smart card-based fare payment systems, then it creates a market and an opportunity to come in and offer more additional services to piggyback on that infrastructure.
"The first thing that has to happen is the transportation industry has to wean itself off of older technology that doesn't support electronic fare payment." But once the infrastructure is in place, it would "create a market for someone who's processing payments, someone that's already offering these services to retailers," Vanderhoof said.
"So, sell transit cards like they're selling lottery tickets. Build up the fact that there's a big group of people using the transportation system and, therefore, they would have a ready market to go sell the processing or card issuance or retail or merchant type of support packages."
Someday soon, prepaid transit cards may occupy space next to long-distance calling cards and coffee cards in gift card malls and convenience stores nationwide.
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