Bus agencies are turning to California for their 'tap to pay' fare systems

For years, California transit executive Carl Sedoryk searched for a way to make fare collection easier on the roughly 130 buses that transported passengers in Monterey, Salinas and surrounding areas just south of the Bay Area.

But none of the solutions he encountered fit the needs of the relatively small transit agency that he headed. His agency used a “closed loop” card, which customers bought and loaded with money for future fares. Those proprietary systems are common, but they can be cumbersome to administer and can deter new riders from using the bus service. Smartphone apps used QR codes that passengers could scan—much like a plane ticket—but drivers had to verify that the code was valid.

Sedoryk, the general manager and CEO of Monterey-Salinas Transit, wanted to remove drivers from the process of collecting fares as much as possible. And that meant finding a way to replace cash transactions.

“We recognized for a long time that collecting cash is the most expensive and inconvenient way for our passengers to purchase our service. And it’s also the most expensive and inconvenient way for a transit operator to collect payments,” he said. So when a California state official offered a solution that would let his agency pay with a debit or credit card, Sedoryk said, “we were intrigued.”

In fact, Monterey-Salinas became the first transit agency to test the solution for the California Integrated Travel Project, a program established under the California Department of Transportation, or Caltrans, to make travel planning and payments simpler and more cost-effective. The project is now working with 60 transit agencies around the country to roll out similar efforts—even though it is run by a California state agency. The program is helping agencies as far away as Connecticut, Oklahoma and South Carolina to use contactless payments on their transit vehicles.

The arrangement not only allows riders to pay with their credit or debit cards, it can also automatically apply discounts using federal databases. The fact that the state was in charge of the procurement meant that smaller agencies like Monterey’s could access the services provided by large vendors—like Visa and MasterCard—that otherwise might not respond to their inquiries. Meanwhile, California officials hope that the lure of cheaper fares and possibly even tie-ins with other companies that want to promote transit will encourage unbanked and underbanked people to get access to financial services that can improve their credit and allow them to use their cards for other daily tasks.

“For systems of our size, it is a viable option because all of the technology is off the shelf,” said Brian Piascik, the CEO and general manager of Coast RTA, a transit agency that runs 23 buses in the Myrtle Beach area of South Carolina. “It’s all on Apple or Google Pay. I don’t pay a dime for any of that stuff, and anybody can utilize my system.”

Gillian Gillett, chief of the data and digital services division at Caltrans, who oversees the program, said making payments easy is crucial for broadening transit’s appeal.

That’s one reason why her agency partnered with the federal government’s Login.gov program to automatically check for discounts that are mandated by federal law.  Agencies that use the California program can check if a passenger qualifies for a discount for seniors through the Social Security Administration or veterans through the Department of Veterans Affairs. No federal database keeps track of whether people have a disability that would allow them to get a discount, so the California agency built a customer portal for passengers to identify themselves as having a disability.

“I can give you a driver’s license in California, and you can use it in Massachusetts. I can give you a disabled placard in Massachusetts, and you can use it in California. Car benefits are portable. People are just used to everything working. For transit, that’s our competition,” Gillett said. “If you want transit to work, you have to think about it at this level to make it seamless, so people don’t have to think about it.”

To make the system available to people across the country, Caltrans made sure to include that possibility when it negotiated its contracts with vendors (an arrangement similar to one utilized by the federal General Services Administration with its schedule contracts, which allow multiple government agencies to purchase products at a negotiated rate). Transit agencies that use California’s contracts pay the state a small fee.

One of the biggest barriers for people using contactless payments is that they don’t have or use a bank account connected to a debit card or mobile phone app.

But Gillett said transit agencies and private vendors have taken advantage of the contactless payment systems to entice lower-income people to use banks or electronic payment apps like Cash App or Venmo. Cash App, for example, put up billboards in Salinas advertising that people could get a $1 discount off their bus fare if they used the company’s app.

“They put a tiny amount of marketing money in, and 35% of the new Cash App customers in that service area were directly attributable to this demo, meaning the very first time the customer ever tapped their open payments card was on a Monterey-Salinas bus,” she said. “By the end of the demonstration period, 93% of the taps that these customers had were not for transit. They were for everything else, mostly food. So there’s a network effect that transit has.”

Transit agencies, meanwhile, have made the electronic payments more attractive using “fare capping,” which allows riders to pay as they go but gives them the benefits of using a pass. So, for example, a passenger who takes the bus every day for a month would pay the regular fare every time they board until the total fare they paid was the equivalent of the price of a monthly pass. After they hit that limit, their rides would be free for the rest of the month.

That’s something that’s easy to do using contactless payments, especially because banks settle those transactions at the end of every day.

“Many of our customers in Monterey County are either agricultural workers or hospitality workers, and they don’t have full-time jobs. They’re part-time,” Sedoryk said. “They can’t commit to a full month’s worth of a bus pass because they don’t know if they’re going to be working every day. That drives a lot of people into cash. They don’t want to put $70 up front.”

And transit agencies want to move as many people off of cash as they can because it is so difficult to collect, count and administer. The fare boxes that take cash can cost as much as $20,000 a piece, a substantial expense when they have to be added to every vehicle. (The validators used by California’s vendors, by comparison, cost about $1,000.)

Sedoryk said his agency has had a hard time just finding armored car services to collect the cash once it’s been collected. And Piascik from Myrtle Beach complained about the staff time it takes to count the money.

“Handling cash is putting a huge dent in the revenue we generate, because it’s a lot of staff time counting single dollar bills. We do all of it in-house, and it’s mostly sunk costs. It’s people who are on salary and a lot of them could be doing something more productive. I’ve been in there doing it,” he said. “I just want to take the fare boxes off [the buses] and put them in the dumpster and be done with it.”

In the Monterey area, Sedoryk said his agency is starting to roll out contactless payments for paratransit, too. That would allow people with disabilities to use a wearable device to pay their fare easily.

“When you’re in a wheelchair or have other mobility limitations, it’s not unusual to see a caregiver pin cash to their lapel, and then the driver has to get it,” Sedoryk said. “It’s not a dignified way of doing the transaction. We’re hoping we can get people a wearable device like a Fitbit and they can just tap and pay. That’ll make the experience for persons with disabilities a little better.”

There are some drawbacks to contactless payments, though, especially for transit agencies with complicated fare structures.

Some of the biggest metro areas in California, including Los Angeles and the San Francisco Bay Area, use proprietary fare cards to handle transactions.

In the Bay Area, for example, more than two dozen transit agencies use a Clipper card, but part of the arrangement to get them on a common fare card was that none of their fare or transfer rules would change.

“The developers have to look at all 32,000 existing rules and, to add a new one, they have to run the software to make sure that the new fare doesn’t break any of the existing transfer or other fare rules,” said Gillett, who previously worked in the Bay Area. “Then they have to take a Clipper card to a room in Oakland that has every single piece of hardware from every agency … and you have to run every single possible trip in the fare table through all that hardware to make sure that the hardware can take the new fare.”

“In my opinion, the customer doesn’t understand any of that. It’s too complicated. They’re overthinking it,” she said. “They should all have a simple fare policy that the customer understands. … Until we get that certainty and confidence in the public’s mind about transit, that I can pay with what’s in my pocket, and I know how much it’s going to cost me, transit will never succeed.”