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Open-loop payment of transit fares continued to gain momentum with transit authorities in two large U.S. cities giving the green light to contract awards that will eventually enable riders to pay their fares directly with contactless bank cards and NFC phones.

Transit officials in Chicago and Philadelphia the past week approved contracts that could have passengers tapping credit and debit cards and NFC phones to pay fares on buses and trains as early as 2014 with such contactless applications as Visa payWave, MasterCard PayPass, American Express’ ExpressPay and Zip from Discover Financial Services.

The contracts add to momentum for open-loop payment of transit fares, following the decision earlier this year by Transport for London to accept credit and debit cards on the city’s buses before next year’s Olympics. The London Underground is scheduled to follow later next year.

Other open-loop fare-collection projects are in various planning stages, including those in New York City, Washington, D.C., Vancouver and Los Angeles. A small open-loop payment system is already up and running in the U.S. state of Utah.

Banks and payment card schemes, such as MasterCard and Visa, see transit authorities as an important new category of “merchants” for their relatively little used contactless payment cards.

Besides transaction revenue they would earn from the transit agencies as riders tap to pay for rides, the banks and card schemes hope open-loop fare collection will get consumers into the habit of tapping cards and NFC phones, which could then extend to the retail point of sale.

CTA Approves 12-Year Contract
The Chicago Transit Authority, or CTA, approved a 12-year contract with U.S.-based Cubic Transportation Systems for $454 million, which includes all maintenance and operation of the system and equipment costs. The authority will pay Cubic in part from a per-tap transaction fee.

Riders will be able to tap their contactless credit or debit cards and phones to board trains and buses starting in early 2014, as the authority phases out closed-loop magnetic-stripe and contactless cards. For those without contactless bank cards, the authority said it will offer prepaid contactless cards, to be available at more retail locations than now sell fare cards, and buses will continue to accept cash. CTA records about 600 million rides a year.

Later, the CTA could issue a co-branded prepaid card with Visa, which cardholders could use at all merchant locations that accept Visa-branded bank cards, said the transit authority. Cardholders wouldn’t pay extra fees when they use the co-branded cards to pay CTA transit fares or for “online transit products.”

The authority did not say whether it would be able to earn extra revenue from the co-branded prepaid card program from Visa or the prepaid card operator, but that is likely, as with an arrangement Visa and prepaid operator Ready Credit Corp. have discussed with the LA Metro.

Tapping Bank Cards for Fares in Philly
In Philadelphia, the board of the Southeastern Pennsylvania Transportation Authority, SEPTA, on Thursday approved a long-delayed contract for $129.5 million with U.S.-based ACS Transport Solutions Group to install a contactless system that will include acceptance of debit and credit cards and applications on NFC phones to pay fares on buses and trolleys, and later at subway gates.

As in Chicago, riders will be able to use prepaid cards issued by the authority, as well as ID cards. The system aims to replace tokens, paper tickets and mag-stripe cards. All told, SEPTA riders take about 300 million trips each year.

Septa’s so-called New Payment Technologies project is scheduled to be completed in three years. The authority plans to expand the payment system to regional rail, paratransit and parking.