Card-based, Account-based, Open, Closed, Contactless, EMV – the terminology used to describe our ticketing systems today is endless. After spending last month in London socializing with seasoned transit industry veterans at Transport Ticketing Global, I realized exactly how easy it is to get lost in our own jargon. I noticed even amongst my peers how quickly terminology gets adopted, defined, adapted, and redefined - like a business edition of the telephone game. This is why I thought it was important to go back to ticketing fundamentals and explore what our ticketing terminology really means (before we put a marketing and sales spin on it).
Open-Loop Vs Closed-Loop Ticketing
What Is Closed-Loop Ticketing?
When we talk about ticketing systems today, you may often hear the terms ‘open-loop’ or ‘closed-loop.’ Closed-loop ticketing systems function in a similar way to your classic gift cards – let’s take Target as an example. You can go to any Target store (or a licensed retail location) and purchase a gift card for a small fee. You can then choose what value you would like to add to the gift card, and they will load the value onto the card at the checkout. Once it’s loaded, you can use the value on the card at any Target store, but you can’t go and spend it at Walmart.
Similarly, in a closed-loop ticketing system, a rider will need to acquire a credential – usually a transit smartcard. They then need to purchase a fare product, whether that is a travel pass or stored value prior to riding on the transport network. Just like Walmart will not accept a Target gift card, on a closed-loop ticketing system, this card is only accepted by the transit agency on their transport network. Because the card is only accepted within the transport agencies’ network, there is no need for any third parties such as a bank to be involved. This is why the loop is considered closed.
Benefits of Closed-Loop Ticketing
For many, closed-loop smartcards have proven to be a more convenient option than carrying cash or purchasing paper tickets. They have helped transit agencies around the world reduce cash handling costs and speed up passenger boarding times.
However, the need to purchase a fare product in advance of travel can be cumbersome for riders if not implemented well. User-friendly websites and apps that allow riders to manage their accounts and purchase fare products online can go a long way toward minimizing queues at stations and kiosks. Features such as auto-top-up and auto-pass renewal also alleviate these network pressures and provide an added convenience to riders.
Extensive retail network partnerships are also a key investment for agencies. Brick-and-mortar locations not only allow cash-preferred riders to easily add value to their cards, they also serve as important access points for riders with limited access to technology or the internet.
Comparison of Open-Loop Versus Closed-Loop Ticketing Systems
What is Open-Loop Ticketing?
In contrast, when utilizing open-loop systems, riders have a far greater choice in their payment credential. While paper tickets and closed-loop smartcards are still an option, riders can also use other tokens including their credit card, debit card or mobile wallet. Because these payment types can be used outside of the transit network and require the involvement of a third party (banks and payment networks), the loop is no longer considered closed – hence the name open-loop.
Paying via an open-loop token is also commonly referred to as ‘open payments.’ Open payments have become incredibly popular worldwide after they were first launched by Transport for London (TfL) in 2012. Today, open-loop tokens account for approximately 70% of all pay-as-you-go bus journeys and it’s easy to see why. With open-loop, there is no need to acquire a credential in advance or prepurchase any value or fare products. Riders can use what is already in their pocket.
This appeals to many ‘choice’ riders and tourists who may be deterred from using public transport due to issues accessing tickets and understanding correct fares. Similarly, it can help agencies address accidental fare evasion due to similar reasons.
Advantages of Open-Loop Payments
Although open-loop may seem like a no-brainer, uptake of open payments varies a lot between cities, and this can often be traced back to fare policies.
Fare parity is a key factor here - if open and closed-loop fares are not equal or do not have access to the same travel rewards, uptake will never be as high. Access to travel concessions is another key factor. To date, most institutional and concession programs are offered exclusively on closed-loop systems. The New York OMNY system which launched in 2019, recently became the first system to begin offering concessions on pre-registered open-loop tokens.
While there are some great reasons for encouraging open payments usage including lower card issuing and management costs, lower requirement for costly fare vending equipment and associated cash handling and maintenance, lower paper ticket counterfeiting, and less environmental waste from discarded cards or tickets, it is important to remember that they are currently unable to address an agencies whole ridership base. They also come with one other minor downside for agencies – card processing fees.
Challenges of Open-Loop Fare Systems
Have you ever gone to make a purchase only to be told there is a surcharge if you pay by credit card? I have – more times than I can count. This is the store passing the card processing fee back onto you. Every time a shop makes a sale using a credit card, they are charged a small fee.
In retail, the higher dollar value of sales and lower transaction volumes mean these small fees do not add up too much. The cost is worth the convenience of accepting the card payment and overall, you would lose more in sales by only accepting cash, than you pay in fees.
In comparison, transport agencies like the New York City Metropolitan Transportation Authority (NY MTA) and TfL support millions of journeys per day and the average fare is significantly lower than your average retail transaction. This means the cost of fees for this incredibly high volume of small transactions can add up quickly and potentially impact a transit agency’s fare revenue.
Despite this, I still solidly put open-loop in the ‘win’ column for transit agencies and riders.
