Cashless Fare Paymentonlinepubs.trb.org/Onlinepubs/tcrp/tcrp_rpt_31-2-d.pdfCashless Fare Payment...

Cashless Fare Payment

Virginia Railway ExpressSpringfield, Virginia

This page left intentionally blank.


Virginia Railway Express

Background

Processing cash from fare payments is one of thelargest operating expenses for a transit agency.Convenient as it is for patrons to use cash, the costs forcollection, security, and sorting are expensive. Agenciesmust sort the bills, purchase machinery to roll the coins,hire armored cars to transport the cash, and pay banksdeposit fees for the large amounts of cash. By cuttingdown the use of cash for fares, payroll and other costscan be reduced. While for most transit systems,completely eliminating cash transactions would beimpossible due the number of layoffs required and thefact that many riders lack an alternative method of farepayment, a transit agency can overlay non-cash farepayment schemes.

When the Virginia Railway Express (VRE), thecommuter rail system serving the Virginia suburbs of theDistrict of Columbia, began operation in 1991,management decided that it would not offer its customersthe option of using cash to purchase farecards at thestation. Customers can purchase tickets with credit ordebit cards at the stations, by check through the mail, atmerchants around the area1, or with credit cards by

phone. While this cashless system has worked well for thecommuter railroad whose customers have a medianincome of $70,000 and which has an average ticketpurchase of $40, the philosophy is not practical for mosttransit systems. Nevertheless, transit agencies can learnfrom VRE's example and may be able to implement partsof the program.

Agency Profile

137

Transit Cooperative Research Program

Service area

Implementation

When VRE was created in 1991, its administrativestaff decided to avoid cash fare payments and stationattendants as a mechanism to decrease operating costs.Cash payment was expensive for the agency because thesalaries of the personnel needed for secure transport andcounting were too expensive. Collection of the cashwould also have been unsafe because most of the stationsare in relatively uninhabited, wooded areas.

Through marketing surveys, the railroaddetermined that most of its customers would be fromfamilies with incomes greater than $70,000. Most wouldhave credit cards or checking accounts with automatedteller machine access (ATM). The average fare would berather large because customers would commute fromoutlying areas to Washington, DC, and its inner suburbs.Thus eliminating cash as a payment option would notsignificantly burden potential customers.

VRE customers can purchase tickets in twoprimary ways:

• Automated Ticket Vending Machines on platformsthat only accept debit and credit cards and

• Ticket Issuing Machines throughout the servicearea operated by vendors.

The Ticket Vending Machines are actuallymodified parking payment machines run by a 486 IBM-compatible computer using customized software. Theup-front capital cost to equip all 17 stations with TicketVending Machines was fairly small: $1.4 million for themachines and the hardware and software necessary torun them. The Ticket Issuing Machines cost $3,500 permachine, with a total cost to VRE of $500,000.

138


VRE issued one request for proposals to purchasethe equipment and design software for the Ticket VendingMachine computer and another for a bank and Acquirersto perform the transaction for each type of credit card.MasterCard International helped VRE market thedebit/credit payment option to VRE customers.

Program Structure

Each station has several Ticket Vending Machineswith one "talking" machine per station for theconvenience of vision-impaired customers. The machinesaccept Visa, MasterCard, American Express, andDiscover credit cards and Most, Plus, Honor, and Cirrusdebit cards. Each machine has its own modem anddedicated phone line.

To purchase a ticket, a customer inserts a credit ordebit card into the Ticket Vending Machine, the modemcalls the transaction into VRE's administrative offices,and the Acquirer performsthe credit card transaction(the customer's own bankperforms the debit cardtransaction). At VREheadquarters, a 486 IBM-compatible computerenters the transaction data(card number, amount,time, ticket type, anddenial reason if any) into adatabase from which VREcan generate future reports. If the call cannot reach VREheadquarters, the Ticket Vending Machine issues a ticketand stores the information for later transmission. To date,

out of every 10,000 transactions, only two have not beencollected.

Because the Acquirer posts the sales into VRE'sbank account the next day, for credit cards there is

essentially no floatbetween the transactionand payment. For debitcards, the money istransferred from thecustomer's account toVRE's account as thetransaction is processed.Because electronictransactions cannot bemiscounted like cash

VRE's accounting department has no problem reconcilingthe finances.

"The Only Way to go is debit/credit - everything is

posted tomorrow; everything is trackable."

— Dale Zehner, VRE

139


Credit Cards 101

Four groups comprise the credit card industry:

• Bankcard associations. The two bankcard associations areMasterCard International and Visa International. For each ofthese two credit card brands, the associations administer therules and regulations, advertise the bankcards, and run thesettlement and authorization computer systems.

• Issuers. Issuers distribute credit cards to consumers,approve or decline transaction requests from merchants, andcollect monthly payments from cardholders. For credit cardsother than MasterCard and Visa, such as the Discover Cardor Diner's Club, the Issuer is not a member of a bankcardassociation.

• Acquirers. Acquirers handle the communication betweenmerchants and the credit card computer networks andreimburse merchants for credit card purchases. For creditcards other than MasterCard and Visa, the Acquirer is not amember of a bankcard association.

• Member service providers. These companies offer support toAcquirers through authorization, accounting, marketingacquirer services to merchants, customer service tomerchants, and selling or leasing the hardware necessary formerchants to access the credit card networks.

AuthorizationIn order to authorize a transaction, a merchant submits thecustomer's credit card number to its Issuer (via the merchant'sacquirer) and the credit card brand's settlement andauthorization system. The computer system then passes theauthorization approval or denial from the customer's card'sissuer to the merchant via the Acquirer.

Clearing and SettlementMerchants are reimbursed through a process called clearing andsettlement. In draft capture, a merchant sends copies of its creditcard transactions to its Acquirer. The Acquirer credits themerchant's account for the purchases and then forwards the

transactions to the brand's computerized settlement andauthorization system. The system bills all the customers' Issuersand transfers this payment to the Acquirer. Finally, the Issuers billtheir cardholders.

Discount RateThe Acquirer charges merchants a fee (called the discount rate) forits services for authorization, draft capture, settlement,administrative and operating expenses, and interchange. Theinterchange fee is paid to Issuers to cover the costs of operations,fraudulent card use, and carrying of cardholders charges from thepurchase date until the cardholder's monthly bill is paid.

140


The Authorization Process

The Settlement Process 141


For VRE tickets, 75% of the transactions are creditand 25% are debit. The standard for the credit/debit splitin the sales industry is 95/5. VRE survey results show thatthe significant debit share results from the fact thattransportation is a fixed cost for customers each monthand most customers keep the money in their checkingaccounts to cover these fixed costs. Customers do notwant to pay their credit card the interest on their rail fare.

Financial Analysis

VRE allocates fixed costs of administration,monthly machine maintenance, software maintenance,debt service on the equipment, and the phone bill for localcalls from machines to track transaction costs. Variablecosts include ticket stock, an access fee to the financialnetwork for debit cards, credit card fees, variableequipment maintenance, and long-distance calls frommachines. Of the ticket price, 7.1% goes to fixed-priceexpenses. For debit card transactions, 1.1% pays for thevariable costs; for credit card transactions, 2.8% of theticket price is attributable to variable costs.

Lessons Learned

Cashless fare payment can increase transit revenuesby decreasing handling costs. Also, the money is availablefor use by the transit agency immediately with nocollection or sorting time. The key benefits to cashlessfare payment include

• reduced labor costs,• low float, and• improved customer service.

VRE suggests that if a transit agency is interested insetting up a pilot credit card program, it should installmachines in one or two stations to monitor their use bypatrons, operating costs, and potential value to the transitagency.

Ticket vending machines on VRE train platform

142


Contact Information

Dale Zehner and Howard ShockVirginia Railway Express703-642-3808

Margaret ToscanoMasterCard International914-249-4709

Endnotes

1 At local stores, customers purchase the fare cardsusing whatever mechanism the merchant allows forpayment. The store transfers the proceeds from theticket sales to VRE electronically.

143

Eco Pass Program

Regional Transportation DistrictDenver, Colorado

Eco Pass Program

147

Regional Transportation District

Background

The most direct way for a transit agency to generaterevenue is to increase ridership. A transit agency canmarket itself to attract new riders through television, printmedia, or even outdoor billboards. One of the lesscommon ways to generate ridership, is to enlist thecooperation of local employers. One way that employerscontribute to transit funding is by providing a $65 permonth pretax commuting benefit to employees. Theemployer can than deduct the cost of this benefit from itsincome taxes. The Regional Transportation District(RTD), the transit provider for the Denver/Bouldermetropolitan area, has taken this idea a step farther withthe Eco Pass.

RTD was established in 1969 to provide transit tothe Denver/Boulder metropolitan area. The 2,046-square-mile service area contains 2 million potential riders. With828 buses and 17 light rail vehicles, RTD operates local,regional, express, and airport shuttle bus service and lightrail. In addition to utilizing the usual tax-free employeetransit benefit, RTD's transit benefit program includes theinnovative Eco Pass. Employers that participate in thisprogram annually purchase photo-ID

passes for every employee in the company. The passes aregood for "free" travel anywhere in the system.

Implementation

In August 1989, RTD and the City of Boulder,Colorado, jointly implemented the predecessor to the EcoPass, the Mobility Pass program, to encourage commuters

Agency Profile

143 147


to use alternatives to single-occupancy vehicle travel.The program was originally started to meet therequirements of Boulder's trip reduction ordinance.Employees in Boulder liked the employer-provided passand discussed this new benefit with friends andcolleagues. By 1991, at the urging of employees,businesses outside downtown Boulder began to requestexpansion of the Mobility Pass program.

In response to these increased requests for MobilityPasses by businesses located outside of Boulder, RTDrealized that it needed to design a new program andpricing scheme. Prices were to be based on the level ofservice that each business location received from RTDand number of employees who were likely to use thepass.

To develop the pricing plan, RTD surveyedemployees to determine the transit ridership levels forbusinesses in the City of Boulder, Boulder County, Cityof Denver, and other counties in RTD's service area.RTD changed the pass name to Eco Pass and modeled thepricing policy on group insurance: any employer whoparticipates in the program must purchase the Eco Passfor every employee, regardless of whether or not theemployee will use the pass.

RTD's projections for ridership generated by theEco Pass were quickly exceeded. The response was sooverwhelming that the pricing had to be recalculated inorder to recover revenue and cover the costs of servingthis latent demand. For example, in companies indowntown Denver that have purchased Eco Passes, 9.4%of employees became new regular transit riders, 10% ofprevious transit riders increased the frequency of theirtransit commute trips each week, and 20% of

all employeeswith Eco Passesmake non-commutingtransit trips.1

RTD alsolearned that inorder to avoidexcessive costs of administering the program, a minimumcontract size had to be established. The costs toadminister the program, take pictures of employees atwork, and process the monthly payments becameprohibitively expensive for small contracts. The currentminimum contract size is $200, but RTD hopes to raise itin the future.

Once companies sign up for the program, theyrarely drop out, even after cost increases. Employers signup because of environmental concerns, savings foremployees, and parking shortages. Examples of somecurrent participants include Amoco, Burger King,Manning-Berthold Architects, Norwest Banks, and theU.S. Department of Energy.

Program Structure

Employers in the Denver area purchase the EcoPass for all their full-time employees (an option exists forpart-time employees too), regardless of the number ofemployees that actually use the pass. Under the federaltransit benefit program, the cost of the pass is taxdeductible for the employers and the passes are a pre-taxbenefit for the employees. Companies use theirparticipation in the program as a recruiting and

148

Eco Pass Program

retention tool, as well as for public relations because ofthe reductions in air pollution, traffic congestion, andparking resulting from Eco Pass use.

Program Goals

The program has three goals: increase transitridership, decrease regional vehicle miles traveled (byreducing single-occupancy vehicle trips), and improvethe quality of life in metropolitan Denver by improvingair quality. The program has measured up to these goalsbetter than RTD ever expected.

Transit ridership has grown. A survey ofcompanies offering the Eco Pass in downtown Denverhas shown that 52% of employees at Eco Passcompanies commuted on transit prior to the Eco Passprogram; 62% currently travel to work via transit.2

In 1993, the Eco Pass program resulted in 17,440fewer vehicle miles of auto commute trips per day intodowntown Denver. By reducing the number ofcommute trips in single-occupancy vehicles, Eco Passimproves Denver's air quality. "One person using masstransit for a year instead of driving to work saves ourenvironment 18 pounds of hydrocarbons, 153 pounds ofcarbon monoxide, and 79 pounds of nitrous oxides."With over 35 thousand workers in the Eco PassProgram in 1997, Denver's air becomes cleaner everyyear.3

Benefits to Employees

Employees like the Eco Pass because it provides atax-free benefit and is good for unlimited rides on transit.The annually issued Eco Pass can also be used

as an alternative form of identification because thelaminated pass includes a picture of the rider and asignature. In addition, the Eco Pass program enrollseach passholder in the guaranteed-ride-home programadministered by Ride Arrangers, part of the DenverRegional Council of Governments. The guaranteed-ride-home program provides a taxi ride whenever atransit user needs to travel from work for a personalemergency or unexpectedly work late. The Eco Passuser just shows his/her Eco Pass to cover the taxi fare.The taxi company then charges Ride Arrangers for theprice of the taxi ride.

Pricing

RTD priced the program based on a business'snumber of employees and location. The pricing schemeworks as follows. An average annual pass for unlimitedridership on RTD's transit system costs $406. If the EcoPass price were set at this level, purchased for each transituser in the company, and multiplied by the number ofemployees that currently commute on transit, the resultwould be RTD's total revenue for annual passes

149 149


bought by workers in that company. For exam ple, if acompany has 50 employees of which 14 use transit, therevenue generated by their purchasing an annual passwould be 14 workers times $406, or $5,684. Thiscalculation provides the base price peremployee for an Eco Passof $114.

RTD wanted to capture half thecost of an annual pass for new riders.The transit agency estimated that foreach company, the Eco Pass wouldincrease the number of employeeswhich commute on transit by 50%.For the company in the previousexample, RTD would expect 7 newtransit riders. To recover half therevenue that would be generated ifthese riders bought annual passes,multiply the company's base Eco Passprice ($114) by 25%. The result ($28

per pass in the example) would then be added to the baseprice.

Next RTD adds 15% of the base price to Eco Passcost to pay operating costs associated with the serviceexpansion needed for the new riders. Another 10% of thebase price is added to the Eco Pass cost to pay for thecosts associated with the capital expansion necessary asa result of the increased ridership. RTD charges $1.50per pass for program administration and marketing and$2 for the guaranteed-ride-home program. Thus, thesample company would pay $174 per pass or $8,700 forall 50 passes. A sample calculation appears below.

Sample Price Calculations per Eco Pass for Firm Located inDowntown Boulder with 50 employees

150

Eco Pass Program

Lessons Learned

RTD actively promotes its Eco Pass program, andmore than 1,100 companies with over 35,000 employeesparticipate in the Eco Pass program. Over the last 6 years,studies have shown that this program has successfully metits three goals:

• Increase Ridership. More people ride transit forwork and non-work trips.

• Decrease Single-Occupancy Vehicle Trips. In1993, the totalvehicle miles of autocommute tripsdecreased by 17,440miles per day intothe Denverdowntown area.

• Improve AirQuality. Fewer tripmiles mean cleaner air.

RTD's pricing scheme is a key factor in theprogram's success. For instance, RTD performedsurveys and commissioned studies to determine thecurrent bus and rail usage by residents in the differentservice areas. This step was necessary because thetransit agency did not want to lose revenue from peoplewho converted from passes or fares to the Eco Pass.RTD also made sure that the pass price recovered alladministrative and marketing costs and provided forfuture expansion necessitated by the increased ridershipfrom the program.

Contact Information

Fay Lewis and John PungRegional Transportation District303-628-9000

Endnotes

1 "Eco Pass Effectiveness Study" for the Regional AirQuality Council, prepared by the Howell ResearchGroup in November 1993.

2 Ibid.3 Ibid.

"More than 1,100 companies with over 35,000

employees participate in the Eco Pass program."

151

Partnerships with the Community

Pullman TransitPullman, Washington

CitibusLubbock, Texas

Iowa City TransitIowa City, Iowa


155


Transit adds value to a community by movingpeople. Often private business or public entities willpurchase bus or rail services from public transit systems.These partnerships are beneficial both to transit agenciesand the population served, but the Federal Transit Actprohibits transit agencies that receive federal subsidiesfrom competing with private transportation providers.Thus, public transitagencies must give firstpriority to any non-subsidized operator whowishes to provide service.

In this case study,we examine threeexamples of partnershipsbetween transit operators

and their communities. In Pullman, Washington, theschool district pays Pullman Transit to provide service forchildren traveling to school. In Lubbock, Texas, TexasTech's student body pays Citibus to transport studentsaround the campus. In Iowa City, Iowa, the downtownbusinesses pay for customers' bus trips home because theyrecognize the value that transit brings to the community in

dealing with thedowntown parkingproblem. In addition, amall on the outskirts ofthe city pays forcustomers to ride homefree in order to attractstudents from TheUniversity of Iowa.

"Often private businesses or other public entities

will purchase bus or rail services from transit

systems."


157

Pullman Transit and the Local School District

Background

In the 1970s, with the gas shortage in full swing,there was no transit system in Pullman, Washington, andthe citizens became concerned with mobility. At the sametime, there was a parking shortage, especially in theWashington State University area. In response to theseissues, the City of Pullman started a transit system inMarch 1979.

Pullman Transit, a department of the City ofPullman, Washington, operates a 14-vehicle, fixed-routeand paratransit service which accommodates school tripsfor university, high school, and junior high school studentsin addition to work and other trips.

In the State of Washington, all students who livemore than one mile from school must be offeredtransportation by bus. The school district itself used toprovide the transportation because there were no privatebus operators in Pullman. Eventually the Pullman SchoolDistrict decided that it was duplicating the efforts of thetransit system: both agencies did not need to run buses tothe same places, especially since at the time, many transitbus routes had very low ridership. In order to fill

the transit buses and decrease the capital expenditures ofthe school district, the two parties reached an agreement in1982, whereby the school district would pay PullmanTransit to bus all students from sixth grade through highschool.

Agency Profile


Service area

Travel Peaks

Program Structure

The school district issues ID cards to all its students,and Pullman Transit gives the school district stickers toadhere to the IDs of students who ride the buses. For thebus service, the school district pays Pullman Transit amonthly fee that is negotiated each year. For the 1996-1997 school year, this payment totaled nearly $40,000 or3% of the transit system's operating budget. The studentscan use the buses throughout the entire service day(6:50am-6:50pm).

"The students' parents really like the program."

—Rod Thornton, Pullman Transit

Since the school district does not have a great dealof money, it is limited in what it can pay the transitagency for the service. Pullman Transit receives about$40,000 to provide the students with bus service, but thecosts of the program are nearly $60,000. The programcosts include additional scheduling needs, part-timedrivers to cover the peak school periods, andadministrative work for the program.

158


159

Community Effects

The community is extremely pleased with theprogram. When the school district bused the studentsitself, the students could only ride buses twice a day: toschool in the morning and home in the afternoon. Nowstudents can stay late at school for sports or clubs, butstill take the buses home; consequently, parents do notneed to shuttle their children back and forth. Anotherbenefit to the parents is that if children want to go outafter school, the parents do not have to drive them.

Problems

Serving diverse populations of both workers andschool children spreads out Pullman Transit's peakperiods. The school peak is slightly later than thecommuter peak in the morning and slightly earlier in theafternoon. This peak spread creates logistics difficultiesfor the small system in coordinating drivers with busroutes. The longer peak also increases costs of transitoperation because Pullman Transit needs moreequipment and part-time drivers.


161

Citibus and the State University

Background

Citibus was created in December 1976 to providetransit service to the City of Lubbock. Today the system,which is operated by a contractor, has 23 local routes and5 routes to serve the Texas Tech University campus.Citibus also provides paratransit to qualified customers.

In 1968, the Texas Tech Student Association firstcontracted with Citibus to provide shuttle bus service oncampus. Today the university is experiencing significantgrowth, yet the campus is closed to vehicular traffic, thereis limited nearby parking, and the commuter lots forstudents are full. In order to serve the transit-dependentstudents and solve the parking problem, the University'sstudent government contracted with Citibus to provide busservice. The service, which operates daily every 5 to 7minutes until 3pm and every 15 minutes thereafter, iscurrently provided during fall, spring, and summersemesters. Since 1968, the service has experienced a slowand steady increase in ridership as the University hasgrown.

Program Structure

Until 1996, the student body funded the shuttleservice which was provided free to students andcommunity residents. Last year, the students paid$500,000 for the operation of this 13-bus service; thepayment covers the complete cost of the service:

Agency Profile


operations as well aspublishing schedulesand maps. No federal,state, or local fundssubsidize this service. Asan added bonus forCitibus, the $500,000payment from the schoolcan be used as a localmatch for federalassistance.

Over the last year,Citibus has negotiatedwith the students andthe universityadministration toprovide more service to meet the university's 20-year planfor growth. Currently, Texas Tech is the second largestAmerican university by acreage (it covers 1,839 acres).The university's buildings are widely dispersed around theproperty.

Through conversations with the university, Citibusencouraged the administration to develop the space moredensely, that is, fill in the empty space rather than expandto outlying areas. Citibus also offered to provideadditional bus routes to transport the growing studentbody so that new parking lots will not be necessary. As atrial, Citibus is providing additional service with fourexpress buses to serve off-campus housing directly. TheUniversity recently tore down a parking lot to build anew stadium, and the shuttle service carries the displacedparkers to campus from off-campus housing and satelliteparking lots. Because the construction costs

of the new stadium are partially paid out of studentactivity fees, the administration has agreed to contributemoney for the additional bus service. Citibus nowreceives $700,000 to provide bus service for Texas Tech;the service is operated completely with those funds — nosubsidy is used.

162


163

Iowa City Transit and the Private Sector

Background

Iowa City Transit operates fixed-route andparatransit service to Iowa City, a suburb (UniversityHeights), and outlying university sites. Two other transitsystems also operate in the Iowa City metropolitan area:Coralville Transit, which provides service to the suburb ofCoralville, and Cambus which provides service to themain campus areas of The University of Iowa.

Iowa City residents have trouble finding parking inthe downtown area. Iowa City Transit provides analternative to driving for shoppers, employees, anduniversity students traveling downtown to shop, work, orattend school. The service also brings transit-dependentresidents from the community and university to outlyingshopping areas, including Sycamore Mall.

Program Structure

The downtown businesses participate in a Park and Shopand a Bus and Shop program. With a $15 qualifyingpurchase, customers either receive parking validation or avoucher for a free transit ride that is good at any time. Asimilar program has been put into place by SycamoreMall. While this outlying mall has free

parking, it participates in the Bus and Shop program inorder to attract university students.

The Bus and Shop fare is collected in the followingmanner. Riders give the Bus and Shop passes to the busdrivers who turn them in to Iowa City Transit'sAdministration. Iowa City Transit then collects thenecessary fares from the participating merchants. Totalreceipts provide $15,000 annually for the $2.4 millionoperating budget. The merchants also pay for themarketing of the program on the buses and other locationsaround town.

Agency Profile


165

Lessons Learned

Only in cases where there is no private operatorinterest can public agencies provide contracted services toother public or private entities. This case study has shownus that contracted partnerships between transit and thecommunity can provide

• a revenue source for transit agency,• a match for federal grant funds, and• a flexible transportation option for the

transportation disadvantaged.

The revenue the transit agency receives for the servicewill at most cover the transit agency's cost to provide theservice. The service also fosters goodwill between thetransit agency, the private sector, and other public sectoragencies and the people these agencies serve. This type ofpartnership gives local businesses and other publicagencies and their clients a vested interest in the healthand well-being of the local transit system.

Contact Information

Rod ThorntonPullman Transit509-332-6535

John WilsonCitibus806-767-2380

Ron LogsdenIowa City Transit319-356-5151

Cashless Fare Paymentonlinepubs.trb.org/Onlinepubs/tcrp/tcrp_rpt_31-2-d.pdfCashless Fare Payment...

Documents

Transcript of Cashless Fare Paymentonlinepubs.trb.org/Onlinepubs/tcrp/tcrp_rpt_31-2-d.pdfCashless Fare Payment...