Lessons from London: The blueprints for open loop


For years, London’s open-loop transport system has been heralded as an example of what is possible around the world. Transport for London (TfL) processes at least three million contactless journeys daily, accounting for more than 60% of pay-as-you-go transactions. The high demand for contactless ‘tap and go’ capabilities has enabled the UK government to extend that capability to 53 other stations outside London – and counting.

However, there has always been debate over whether most other transport agencies could realistically replicate TfL’s success with contactless fare payments if they wanted to. After all, TfL has certain advantages and conditions that many smaller agencies across the globe don’t. Plus, while open loop systems have many benefits, they also still have numerous issues that still need to be overcome before they can be fully embraced.

This article will examine whether open loop systems can, or should, become the universal standard in the coming years, and how modern ABT solves many current pain points.

What’s the difference between open and closed loop transport systems?

Open and closed loop transport systems offer two different solutions to the same issue, namely how people pay to use public transport services. Closed loop systems, such as TfL’s Oyster, use proprietary cards and technology, with cards needing to be pre-loaded before customers can use them for payment. Conversely, open loop systems allow customers to use their normal contactless Europay, Mastercard or Visa (EMV) banking cards to tap in and tap out of transport services as needed, with payment taken directly from the cards via their banking provider.

The case for open loop systems is growing

While both systems are used all over the world by various transport agencies, open loop systems are steadily growing in popularity and slowly starting to replace older closed loop systems in many cases. The reasons for this are numerous.

Firstly, most prospective passengers already own an EMV bank card, and/or NFC enabled smart device linked to their account, eliminating the need to supply them with a specific card, as is required with a closed loop system. This is more convenient for passengers and saves transport agencies significant amounts of money, both when it comes to manufacturing the cards and funding future upgrades.

Secondly, open loop systems are globally interoperable as long as cards or NFC devices support the same payment brands on the open loop terminals, whereas closed loop systems are almost always proprietary and therefore only work in one specific location.

Thirdly, because open loop systems use standard EMV bank cards, they don’t require passengers to lock up funds like they must on pre-pay closed loop cards. Fares are almost always charged on a pay-as-you-go basis, and in most cases are capped at daily or weekly limits, just like they are on closed loop systems.

But open loop systems aren’t without their drawbacks

With so many benefits, you might think every transport agency around the world is eyeing up a move to open loop systems, but that’s not the case. For all the upsides, open loop systems also have numerous drawbacks and/or hurdles that still need to be overcome, which is why they are yet to garner universal appeal.

One of the key drawbacks is their inability to account for customers that don’t own a suitable EMV payment card, either because they don’t have a bank account, or don’t want an NFC enabled card/smart device. Furthermore, some customers simply don’t want to use their bank cards in this manner, often because of security concerns. Consequently, agencies using open loop systems must still provide alternative payment solutions as well. Another downside for contactless is that when making high-value journeys customers often want certainty that they have purchased the correct ticket. For example, for a journey like Brighton to Bedford which could cost over £30, people are still likely to prefer a physical or digital ticket that they can purchase in advance.

Another drawback is the fact that agencies using open loop systems have to pay merchant-service fees to the banks to collect fare revenue. An agency the size of TfL can use its large size and scale to negotiate favourable rates in areas like this, but smaller agencies don’t have that luxury. In addition, regulations in the UK, as in the European Union, cap interchange rates at 0.2% for debit payments and 0.3% for credit, which is much lower than other countries like the US.

A final stumbling block for current open loop systems is the inability to deal with concessions, which many see as their Achilles Heel at present. A significant number of transport customers qualify concessions, such as students, pensioners, veterans and more. However, most open loop systems don’t currently have the technology in place to correctly identify and support these customers at the point of payment. As a result, they still must rely on alternative methods of payment, where their discounted status is already confirmed and charged appropriately. And although this technology is slowly starting to appear, mass adoption is still some time away.

Is ABT the answer?

Open loop has been growing in popularity for years. However, for many transit agencies, the ability for customers to pay using bank cards fuels support for account-based ticketing (ABT). True ABT systems consolidate and integrate the intelligence formerly stored on both fare and validation devices by transferring it to the back office.

Modern ABT solutions also work across multiple types of travel media such as contactless smart cards, barcodes (on paper or screen), contactless payment cards (EMV) and mobile devices. Plus, they use simplified validation devices that just need to read and authenticate travel media. This minimises the dependencies between the back office ABT and the validation devices, making it much easier for agencies to make updates as required, while giving riders absolute freedom. Riders can use traditional agency-issued smart cards, open payments and digital wallets, offering the best of both worlds where open and closed payments are concerned.

This also solves the challenge of concessions still evident in open loop systems. For example, New York’s transit agency was the first large-scale system to link concessionary discounts to open-loop cards and wallets, with the discounts calculated in the back office. Travellers can add a concession, such as student or retired status, to their bank card which means they get the concession price every time they tap, just as they would on a closed loop smart card. OMNY customers also qualify for weekly fare capping.

A final note

While the case for open loop payment systems continues to grow, many transport agencies around the world still aren’t ready, or able, to make the leap. Whether this is due to cost, lack of technology, or simply because their existing closed loop systems are still perfectly adequate, every case is different.

Many of the key hurdles to open loop adoption are also slowly being overcome – and until then, systems that work in tandem with closed loop options is a standard approach across the globe. However, modern ABT solutions solve many of these pain points, offering the best of both worlds where payments are concerned. While London has shown what’s possible for open loop, looking to cities such as New York and Chicago highlight the potential and value of ABT solutions. For example, enabling concession pricing on open loop.

Article by Aaron White, business development director (UK) at CUBIC.

Comment on this article below or via Twitter: @IoTNow_


Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top