Chicago and Philadelphia are doing away with fare cards in favor of an "open fare" system

After a complicated and lengthy tendering process, the Chicago Transit Authority consummated a 12-year, $454 million deal to provide an "open payments" fare system for Windy City commuters. The CTA signed the agreement with the company Cubic just weeks after Philadelphia’s Southeastern Pennsylvania Transportation Authority concluded its own $129.5 million open payments contract.

In both cases, transit riders will be able to pay fares with credit or debit cards that have radio frequency identification (RFID) chips, which allow for so-called "contactless" transactions.

Open payments is considered the next stage in the evolution of fare media - a step up from the advent of reloadable proprietary cards issued by transit agencies. By allowing riders to tap bank cards and eventually smart phones on contactless readers as they board vehicles or enter subway stations, transit agencies believe they can make life simpler for harried commuters. Large financial institutions and credit card companies have pushed hard for this technology in recent years because fares represent a major new retail market previously controlled by transit agencies.

"It gets the CTA out of issuing private currency,” observes Eric Reese, the CTA’s general manager of business development, noting that the authority will save $5 million a year because it will no longer have to issue and administer fare media. "You don’t have to constantly buy new cards."

Other cities have experimented with something similar. Salt Lake City operates a small-scale open fare system on its bus fleet while transit authorities in New York and New Jersey have run pilots in partnership with Mastercard. Other agencies have tried to launch open payment systems, but with less success. The Toronto Transit Commission in mid-2010 put out a hastily written request for proposals but that effort attracted only a single bidder. The plan died on the vine due to changes in local political priorities. Washington’s Metro system has also been pursuing an open payments strategy, but is still in the RFP stage.  

With these deals signed, Chicago and Philadelphia became the first large-scale early adopters for open payments, at least in North America. The CTA carried 517 million riders in 2010 and generated over half a billion dollars in fare revenue, according to spokesperson Brian Steele; SEPTA provided 235 million unlinked trips and brought in $426 million in revenue for fiscal 2010.

In Chicago’s case, CTA officials, with encouragement from Mayor Rahm Emanuel, pressed ahead with the huge contract because Cubic agreed to absorb a significant amount of the financial risk associated with the implementation, says Reese. The contract stipulates that Cubic’s service charges will remain frozen for the life of the deal, which protects the CTA from price escalation. And while ACS required an upfront payment from SEPTA for its open fare system, Cubic only gets paid once the Chicago system is installed and working, he added. "They’re incentivized to push forward with having cards in the hands of customers."

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