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Transit agencies in some of the largest cities in the United States and Europe are moving forward at varying speeds toward accepting credit, debit and prepaid cards to collect fares onboard buses and at metro gates.

The concept got a big boost this week when giant transit authority Transport for London confirmed it has given the green light to plans to open up its bus network to direct payment of fares with contactless credit and debit cards branded Visa, MasterCard and American Express by early 2012–in time for the Olympics Games that London will be hosting later in the year. Fare collection with open-loop payment cards are to follow on the London Underground.

Stateside, the Chicago Transit Authority last week issued a request for proposal for a contactless fare-collection system based on bank cards. Proposals from consortia likely to be led by banks or credit card companies are due in early November. As many as 12 banks or credit card companies reportedly responded with comments and notes of interest during the informal first phase of the bidding process.

"The next generation of fare media is expected to be a contactless smart card that would contain a computer chip and operate as a standard credit or debit card enabling CTA riders to pay their fares and also use it for other purchases, but without having it tied to a bank account," the CTA said in a statement.

It’s not hard to see why banks and credit card companies are interested in covering or at least fronting the cost of new terminals and back-end systems to help Chicago get out of the business of collecting fares. In a press release announcing the RFP, CTA president Richard Rodriguez said the system being envisioned would enable the selected “fare-card partner” to expand its presence in the Chicago market "by working with other retailers interested in offering promotions to the millions CTA serves each day."

The RFP document lays out a schedule that calls for a tentative contract award sometime next spring and a notice to proceed being issued by May 2011.

Trial Continues in NYC
Meanwhile, in greater New York City, the Metropolitan Transportation Authority, or MTA, and other transit agencies are in the midst of a six-month trial begun in June of open-loop fare collection, using MasterCard’s PayPass and Visa’s payWave applications. The trial, scheduled to last through November, allows riders on some routes to pay fares using contactless credit and debit cards and other devices such as cell phones.

Visa said last month that part of its participation in the trial would involve tests of its payWave application loaded on contactless microSD cards and used to pay fares in New York City. While it didn’t mention the issuer, Bank of America has already disclosed plans to test the Visa application on microSDs in New York City. That trial was scheduled to begin last month.

MTA chairman and CEO Jay Walder said at a recent meeting organized by the Smart Card Alliance trade group that the tests are designed to evaluate the impact on both customer convenience and costs for transit agencies to accept payment cards for fares. At the meeting, representatives from among the biggest U.S. banks, JPMorgan Chase, Citigroup and Bank of America, expressed their “commitment” to supporting transit agencies in opening up their fare-collection systems to bank cards. American Express, Discover Financial Services and the two largest card brands, Visa and MasterCard Worldwide, also strongly support the concept, noted the trade group.

Under the idea, transit operators would, in effect, become like other merchants accepting branded payment cards and paying merchant fees.

"We want to be like Macy’s, with a system that’s simpler, better and cheaper," Amy Linden, senior director of new fare payment systems for the MTA, said in a statement.

London Preps for International Visitors
In London, after a long evaluation process, Transport for London said it is ready to move full-speed ahead on open-loop payment of fares. Like transit authorities in Chicago and New York, it wants to get out of the business of running its own fare-collection system, despite the popularity of its Oyster contactless card scheme. The authority noted, however, that Oyster would continue to operate in parallel with credit and debit cards.

"With 9 million contactless credit and debit cards already in circulation in the UK and many shops offering contactless payment, we are positioning London’s transport system at the forefront of ticketing technology and expect to see this new method of paying for travel widely adopted in the next few years," said Kulveer Ranger, transport adviser to London’s mayor Boris Johnson, in a statement.

He added that Transport for London has also been working with transport operators in other major cities on standards to ensure the contactless credit and debit cards are interoperable at fare terminals. London transit officials also have said in the past they want to be ready for the influx of international visitors expected for the Olympics, which are scheduled to begin in July 2012. Accepting international bank cards for transit would help. 

"Once introduced, contactless payment using credit and debit cards would make London’s public transport much more accessible to visitors, both domestic and international, who are not familiar with Oyster or who do not carry an Oyster card, but do have a contactless credit or debit card," said Ranger.

Other cities that have been considering adopting open-loop systems that partner with financial institutions include Philadelphia, Washington, D.C., and Toronto.

But while some transit agencies are eager to move away from closed-loop systems, the pace of change is proving perhaps a little too quick in some places. For instance, a push by some interests to move Toronto’s transit system to an open payment structure is reportedly meeting resistance from provincial officials, who want to keep the local closed-loop system.

In all the cities considering opening up their fare-collection systems to open-loop payment, the same applications on contactless cards issued by financial institutions could also be loaded onto NFC phones or related contactless-mobile technology, which consumers would tap as they do cards. But unlike cards, the riders could also use their phones and mobile networks to top up value or purchase tickets over the air.