Post on 12-Aug-2019
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Building a Business Model and Business Case for Open Bank Card Payments
Jerry Kane Senior Project Planner SEPTA
Open Bank Card Payments for Transit A Smart Card Alliance Educational Institute Workshop
2011 Mobile and Transit Payments Summit Marriott City Center Hotel, Salt Lake City, UT ― February 15-18, 2011
Willy Dommen Senior Associate Booz Allen Hamilton
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Agenda
Introduction
Business Case Framework
Business Model
Case Studies
Conclusion
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Motivation for Fare Payment Project
Current system nearing the end of its useful life
Current system is costly to maintain
Current system subject to fraud and leakage
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Motivation, continued…
Regional Fare Coordination
Desire to explore new fare payment alternatives: Reduce payment complexity Improve customer service Attract new customers
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Business Model Provides a tool to assess
operating and capital costs of alternative systems
Quantifies specific characteristics, selected options for different scenarios
Develops forecasts for various scenarios
Business Case Provides justification for
why a project should be under taken
Verifies how a project will further one of more of an agency’s underlying goals
Versus
Understanding the difference between…
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Return on Investment
Business Case
Improved Customer Service
$ ROI
Political Agenda
Fare Equity
Regulatory Compliance
Business Case may consider more factors than ROI
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Agenda
Introduction
Business Case Framework
Business Model
Case Studies
Conclusion
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Objectives for Developing the Business Case
Organize thoughts and knowledge about a potential project
Consider potential drawbacks and flesh out missing information with further research
Pinpoint the key pluses and minuses of a project, and develop a stronger ability to communicate
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Objectives for Business Case, continued…
Develop a financial/non-financial justification for a project
Build teams familiarity with a project’s main points even before it is approved
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Building the Business Case
Focuses on the whole process instead of individual activities
Takes a “clean sheet approach”
Strives for improvements across all functions
Avoids defending old internal and external organizational relationships
Continuously evaluates the impact of open payment media on the fare payment process
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Characteristics of a business case
Thorough and complete following a proven framework
Clearly delineated options and scenarios
Structured and methodical analysis
Conclusions independently verified
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Business Case Framework
Approach to New Business Case©
Identify Internal
Capabilities
Develop Baseline
Set A Goal
Identify Fare Payment
Processes
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Framework Continued...
Profile each Fare Payment
Process
Set Priorities For
Implementation
Formalize And Initiate
Implementation Plan
Monitor Implementation
Process
Develop “To be” Process
Identify Gaps between” as is” and “to
be”
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Document Existing Conditions
Identify Fare Payment Processes Develop Baseline Identify Internal
Capabilities
Core Resources
Infrastructure
IT Systems
Stakeholders
Degree of impact on overall fare payment of each process
Stakeholder impact on fare payment process Internal External
Starting point Time Cost Quality
Size of issues
Stakeholder vision
Implementation barriers
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Developing Baseline, example Current System
AFC Equipment Configuration • 3724 validator/turnstiles • 5711 fare boxes
POS Equipment Volume • 1628 Vending Machines • 596 Express Machines
Media Breakdown • Mag stripe Card: 170 million (90% of fares paid
using mag stripe card) • Single Ride:48 million
Payment Method • Mag Stripe Card: 55% by credit/debit • Single Ride: cash only • Bus cash sales
Transaction Fee Structure • 1.9% + $.10 per transaction • Average Transaction $25
Merchant Sales Baseline
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Baseline, example
Distribution Channel Operating Cost Percentage
Sales Agents $2.7 M 60%
Vending Machines $1.22M 27%
Retail $0.45M 10%
Mail/Web $0.13M 3%
Total $4.5M 100%
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Baseline, example
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Establish future state of fare payment
Identify Gaps between “as is” and “to be” Develop “to be” Profile each
Process
Actives for each
process
Impact of activities on
cost and service levels
Resource
requirements
Organizational changes
Operational changes
Stakeholder impacts
Tangible improvements
Consistent with goals
of stakeholders
Industry benchmarks
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Sample process profile tool
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Program implementation
Monitor Implementation Process
Initiate Implementation Process
Develop Implementation Plan
Detailed requirements
gathering
Acquisition process
Design Development
Deployment
Organizational support
Customer response
System Performance
Adjustments to system
Communication strategy
Assign responsibilities
Schedule Budget
Performance measures
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Agenda
Introduction
Business Case Framework
Business Model
Case Studies
Conclusion
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Key Components of Cost Model
Value proposi-
tion Open Payment
Distribution costs
Operation costs
80-85%
Optimisation of sales process
Reduction of points of sale
Reduction of Ticket vending
machines
Reduction of forged tickets
Revenue increase
Operating Cost reduction
Optimisation of Resource
employment
15-20%
~30%
~50%
~50%
Customer Service/sales via internet
Paperless ticketing Reduction of cash-handling
Consulting/sales via internet Call center/customer support
(Banking Model) Reduction of maintenance and
field service Costs of investment
Analysis of utilisation data Assessing/planning train
utilisation
Stored Value Float
Return of credit balance on card
~50%
Potential
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Sample Fare Payment Model
Developed with Smart Card Alliance White Paper
Allows you to build out fare payment options and compare costs over project lifecycle
Measures project cost performance based on: Net Present Value Cost Per Dollar of Collected Revenue
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Staffing Work Sheet Alternative Title Head
Count Year Year Year Year
1 2 3 4
Present Administration 10 551,718 568,270 585,318 602,877
System Revenue Transportation 35 1,403,149 1,445,243 1,488,601 1,533,259
Revenue Services 55 1,681,134 1,731,568 1,783,515 1,837,021
Revenue Audit 10 297,804 306,738 315,940 325,418
Revenue Equipment 62 2,704,909 2,786,056 2,869,638 2,955,727
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Year Year Year
Alternative Capital/ Operating Type of Fare Media 1 2 3
Baseline 1 Operating Magnetic Passes 1,000,000 1,122,267 1,122,267 RR Paper Tickets 150,000 158,900 158,900 Paper Transfers 35,000 33,369 33,369 Paper day passes 6,000 6,356 6,356 Bank Fees-Expenses 750,000 750,000 750,000
Total 1,941,000 2,070,892 1,320,892
Total future cost 1,941,000 2,197,009 1,443,374
Total present cost 1,941,000 1,955,330 1,211,885
Fare Media Work Sheet
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Agenda
Introduction
Business Case Framework
Business Model
Case Studies
Conclusion
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Case Study 1, Conversion to Contactless Bank Card
Current system: Magnetic stripe plastic media
Equipment status: Nearing end of useful life
Business requirement: Equal to or lower operating cost
Transit System type: Multi-modal, multi-operator regional operations
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The business model assumes the following features
Magnetic Stripe Contactless Card
Fare Media Cost $0.004 (Single Ride - paper) $0.08 (MagCard - plastic)
$0 ($3 incurred by card issuer)
Average re-use single use (paper) 100 uses (plastic)
5,000 uses
Reliability Low High
Read-writer Cost $2,300 - $3,100 $1,500
Speed per transaction 2-4 s >300 ms
Ease of customer use Need to insert or swipe Read through wallet
Maintenance Requirements Readers require daily cleaning Minimal mechanical wear
Sales Payment in advance Payment on open system
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Investment for contactless open payment infrastructure
Equipment Investment – An investment of approximately $140 million in AFC equipment is required in order to achieve the operational savings Agency’s budget for upgrading AFC equipment may be applied
toward purchasing smart-card enabled equipment Agency’s budget for replacing High Production Encoding
Machines would be reduced in proportion to the reduction in MagCard sales
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Scenario MagCard Credit/Debit to
Contact-less MagCard Cash to
Contact-less Single Ride Paper
to Contact-less Bus Cash to Contact-less
Total Operating Costs ($1,000)
1 Current System $166,190
2 10% 10% 5% 10% $156,556
3 20% 20% 10% 20% $150,100
4 30% 20% 15% 30% $145,135
5 40% 20% 20% 30% $140,416
6 50% 20% 20% 30% $136,942
7 60% 20% 20% 30% $133,467
Annual operational cost savings may be realized
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Initial projections indicate a business case for open payment cards
Annualized Cost Savings – Annual savings of approximately $16 million may be realized at a 20% market penetration rate of contactless open payment cards The largest savings result from reduced card management Savings are distributed in small amounts across several
components, but accumulate to offset increased transaction fees and reduced float revenue
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Case Study 2, Gating Rail System
Proof of payment environment
Fare Inspection by Sheriffs Department
Multi-modal regional systems continues to add and extend lines
Smart card fare media operational
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The following gating scenarios were analyzed in detail
Implementation Scenario Physical Gating Strategy
Number of Gates
Passengers Checked at Gates
During Their Journey
Option 1 Red Line only 154 gates 59%
Option 2 Red and Green Line, and strategic light rail stations
275 gates 84%
Option 3 All Metro Stations, not architecturally constrained 394 gates 98%
All fare media will be based on contactless smart card technology For those stations where a physical barrier is not installed, a single tap-on validator or
a series of tap-on validators will be strategically placed so that passengers can validate their fare media
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Business case is based on reducing fare inspectors and improving fare evasion rates
Option 1 Red line only
Option 2 Red & Green Lines
Option 3 All Metro Stations
Direct capital cost – ONE TIME
Equipment Civil Station Modifications*
$9 million $12.4 million
$15.3 million
$30.9 million
$18.4 million $46.4 million
Net Change in Annual Operating Costs
Maintenance Police patrolling, fare inspection Customer Service
$0.5 million $1.4 million $0.5
million
$1.0 million $2.4 million $0.7
million
$1.2 million $2.8 million $1.1 million
Annual Benefits Contracted civilian inspectors Reduced fare evasion
($7.06) million ($2.7)
million
($7.06) million ($3.8) million
($7.06) million ($4.5) million
Net Decrease Annual Cost ($7.30) million ($6.77) million ($6.47) million * includes 30% contingency
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Agenda
Introduction
Business Case Framework
Business Model
Case Studies
Conclusion
Property of the Smart Card Alliance © 2011
Characteristics of a business case
Thorough and complete following a proven framework
Clearly delineated options and scenarios
Structured and methodical analysis
Conclusions independently verified
Property of the Smart Card Alliance © 2011
Building the Business Case
Focuses on the whole process instead of individual activities
Takes a “clean sheet approach”
Strives for improvements across all functions
Avoids defending old internal and external organizational relationships
Continuously evaluates the impact of open payment media on the fare payment process
Property of the Smart Card Alliance © 2011
Smart Card Alliance 191 Clarksville Rd. · Princeton Junction, NJ 08550 · (800) 556-6828 www.smartcardalliance.org
Speaker Contact Information
Willy Dommen
Booz | Allen | Hamilton
Tel (415) 281-4927 dommen_willy@bah.com
Jerry Kane
Tel. 215-580-7151
jkane@septa.org