In a society addicted to buying on credit, the Chicago Transit Authority is hoping to cash in big time.
A “smart” version of those credit cards and bank debit cards stuffed in your wallet will be accepted for payment of CTA bus and train fares in about a year, transit officials told the Tribune on Tuesday.
The card, which will contain a computer chip that allows the user to pay for rides on the CTA, Pace and other participating transit systems, is otherwise a standard credit or a debit card that can be used at all other businesses where it is currently accepted.
“You tap the card against the card reader and get on the CTA. It removes the barrier of having to get our type of fare [card],” CTA President Ron Huberman said.
But the big story is the money. Bank and credit card companies have competed vigorously in Asia and other parts of the world for a piece of the transit market because the all-in-one card usually ends up being stored at the top of consumers’ wallets, so it can be withdrawn easily and often for all kinds of purchases. The companies hope that the added usefulness of their cards will bring them more customers who will use the cards more frequently.
For the CTA rider, the smart cards are billed as being all about the convenience. Consumers ultimately will be able to carry one card to cover just about any expense, from lattes to laundry bills, airfares to Frankfurt and subway rides to Clark and Division Streets, proponents of the cards say.
Visa, MasterCard and all other credit card and banking companies will be invited to bid for contracts, CTA officials said.
Once the system is in place, each fare transaction will be processed in less than a second, so long lines at turnstiles or bus stops should not be a problem, officials said.
The change, which is expected to take place over a period of years, marks a step toward what some financial experts envision as a mostly cashless society. It will also free up the CTA to focus exclusively on providing transportation, while generating new income through long-term contracts with the corporations that issue and manage the cards.
The potential benefits to the consumer are limited only by the imagination of the marketing departments at the credit card firms and banks competing for a chunk of the 1.7 million daily fare transactions on the CTA, experts say. For example: Ride the bus, earn airline miles. Sign up for the Acme Express credit card and as an introductory offer customers can ride the CTA free for a week.
“A lot of merchants validate parking. They could also validate transit use by providing credits for CTA rides as a reward for shopping at their business,” said George Kocur, a senior lecturer at the Massachusetts Institute of Technology’s civil and environmental engineering department.
MIT hosted a workshop last week attended by officials from about 10 transit agencies, including the CTA, and bank card companies.
Computer chips in the smart cards record the transactions, similar to how bank ATM cards and the separate CTA Chicago Cards work. All transactions, account-security issues and customer disputes will be handled by the company issuing the card.
Once the cards with a chip that connects them to the CTA’s program are available, credit card companies and banks will automatically send the new cards to current credit-card clients and invite potential customers to apply for them, probably much in the same way that the companies already flood mailboxes with pitches for credit cards, officials said. Out-of-towners who have a credit card from one of the companies participating in the CTA’s program will be able to use their card on buses and trains when they visit the Windy City.
People who have low incomes, individuals with bad credit or those who don’t like credit or bank cards could continue to use traditional CTA transit cards, until they are eventually phased out, or pay cash fares on buses, CTA officials said. Cash represents less than 5 percent of CTA fare transactions.
Debit cards preloaded with value could also be purchased, along the lines of phone calling cards stocked with minutes of talk time.
The new smart card technology will open new lines of revenue to the cash-strapped CTA and allow it to eventually get out of the costly business of supplying fare cards. The CTA also will need far fewer transit card vending machines, which are expensive to buy and maintain, officials said.
“Moving away from producing our own fare media and maintaining transit card vending machines across the system will save the CTA at least $10 million a year over time,” Huberman said.
The CTA also could reap substantial royalties by offering a credit card company a half-billion transit-fare transactions a year, Huberman said. In addition to royalties, the companies would be expected to help pay for card-reading machines on buses and at rail stations, he said.
Huberman declined to provide potential revenue figures, preferring instead to see how the market responds when the CTA goes out for bids in early 2009.
In 1997, the CTA signed a $106 million deal with the Cubic Automatic Revenue Collection Group of San Diego to install the automated fare-collection system that the CTA uses today.
The original plan was to use the Cubic system for 20 years, but it has proven too expensive to buy, operate and maintain the machinery, Huberman said.
“This is our ticket to get out of a cost-prohibitive system,” he said.
Some type of cash fare-collection apparatus will remain for the small segment of riders who continue to pay with cash, officials said.
But authorities are focused on minimizing the current practice in which transit systems operate like currency exchanges by changing cash into transit cards.
“It’s expensive, it’s a hassle and it doesn’t add any value,” Kocur said.
The trend toward an all-in-one card has already emerged in Europe and Asia. In Hong Kong, for instance, the Octopus Card is used to pay public transportation fees as well as purchases at businesses. Payments are deducted almost instantly. The London public transit agency, which offers a smart card, plans to shift the responsibility for administering the card from the agency to credit card companies and banks in 2010.
“The credit card authorization takes 350 milliseconds or less,” said Dennis Marshall, CTA general manager of business development, who attended the transit smart card conference at MIT along with colleagues from transit systems in London, Paris, New York City and Philadelphia.
A smart credit/debit card pilot project is being conducted on the Metropolitan Transportation Authority’s Lexington Line subway in New York City in a partnership with MasterCard and Citibank. Salt Lake City is scheduled to launch a similar program in 2009.
The CTA plans to start soliciting bids from companies early next year.
A pilot project will then follow on CTA bus routes and selected rail stations. The suburban Pace bus agency will also be involved.
“We believe this is where the market is heading, and we don’t want to be chasing it. We want to be leading it,” Huberman said.
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New way to pay
CTA customers will have the option to use credit or bank cards on buses and trains in the future. Each new smart card is embedded with a computer chip and a radio frequency antenna.
When the customer taps the card against a fare reader, payment details are securely transmitted wirelessly to the company that issued the card, such as Visa or MasterCard. The cards are also valid for use at other businesses that accept credit or debit card charges.
The CTA also will continue for the indefinite future to accept the following forms of payment:
CTA Chicago Card, a value-added card that customers can replenish at CTA vending-card machines in CTA rail stations and selected other locations.
CTA Chicago Card Plus, which is similar to a Chicago Card except that value is automatically added to the card when the account runs low by tapping new funds from a customer’s bank account or billing his or her credit card.
CTA magnetic strip transit cards, as well as seven-day, 30-day and visitors passes are available for purchase at currency exchanges, Jewel and Dominick’s stores and other locations.
Cash, which is accepted only on CTA buses.
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Helping you get around: The latest on all things transit from Jon Hilkevitch at chicagotribune.com/gettingaround
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jhilkevitch@tribune.com
