Industry Insight – Mobility Payments

Free Rides for All? Reflections on the Impact of Zero-Fare Policies

When we talk about public transit, we’re not just talking about buses and trains—we’re talking about people, communities, and the essential lifelines that connect them. So when the idea of zero-fare transit comes up, it is something I take to heart. It’s a compelling idea: making transit more accessible, equitable, and environmentally friendly. Zero-fare policies, while well-intentioned, can lead to more problems than they solve.

Zero-fare transit seems like a surefire way to boost ridership and support those who need it most. As with many things, reality is complex. What looks good on paper doesn’t always deliver in practice.

In 2019, Houston Metro conducted a comprehensive year-long study on the benefits and challenges of implementing zero-fares across their bus and rail network. Soon after, data confirmed that offering zero-fares would boost annual ridership by 30.4 million. However, it would lead to a loss of approximately $70 million in fare revenue each year and an additional $170.6 million in operating expenses to accommodate the increased demand with more vehicles and staff.

A 2024 study by APTA’s Emerging Leaders Program surveyed agencies with zero-fare experience. The study found mixed results. While zero-fares improved access and equity, concerns about disruptive passengers, rider comfort, and safety were common. The report emphasized the need for thorough public marketing, government support and long-term planning for zero-fare programs.

During the COVID crisis, many agencies offered free fares only to return to charging once budget pressures resurfaced. Nearly all of them have returned to charge fares, in order to close the same budget gaps that Houston predicted.

Zero-Fare Experiences

Free transit has undeniable advantages for riders. By removing fare collection, systems become more frictionless, which allowed passengers to transfer seamlessly without worrying about ticket validity or costs. This ease of access has been shown to increase ridership, with national studies suggesting jumps of 20% or more. Kansas City, for example, saw an estimated 31% increase in ridership under its zero-fare program.

The economic and environmental benefits are also significant. Zero-free policies can improve disposable income for riders, creating ripple effects in local economies, including job creation and increased personal income. In Kansas City, zero-fare transit is expected to increase employment and generate additional economic output. Furthermore, fare-free systems can contribute to sustainability goals. Kansas City’s policy reduced annual carbon dioxide emissions by about 7,000 tons.

In Luxembourg, the decision in 2020 to make public transit free nationwide created a frictionless system where passengers can easily switch between buses and trams without worrying about tickets. Equity is another critical benefit that the policy makers in Luxembourg hoped to achieve. Free transit disproportionately benefits low-income riders, students, seniors and individuals with disabilities. By eliminating financial barriers, these policies improve access to education, healthcare, and employment opportunities.

Challenges and Limitations

Despite its advantages, fare-free transit faces several challenges. Revenue loss is perhaps the most significant, with systems often needing to replace millions of dollars in fare revenues through alternative funding models. Kansas City lost $8 million to 10 million in fare revenue in 2020, relying heavily on federal support to sustain operations. In Luxembourg, the cost is even higher at 41 million euros ($43 million) per year.

Operational challenges also arise. Increased ridership can lead to overcrowding and slower service speeds. In St. Lucie County, Florida, for instance, increased boardings led to slower operating speeds and higher cleaning costs—up 25% due to increased wear and tear.

In Luxembourg, road congestion remains unchanged because free fares alone have not lured drivers out of their cars, partially because transit systems fail to offer the convenience of door-to-door travel. In May 2022, congestion on Luxembourg’s roads was equivalent to or higher than levels in May 2019, before the free public transit policy was introduced. The results suggest that the increase in transit ridership is from people that would have otherwise walked or ridden a bike.

Data from the Transit Center underscores this point: Riders prioritize frequency and reliability over cost. Fare-free transit might redirect focus and funding away from improving the overall quality and accessibility of the system.

Finding a Balanced Approach

That doesn’t mean cities shouldn’t consider making public transportation free, particularly for people who need it most — students, senior citizens, disabled people and low-income riders. Agencies can take intermediate steps to maximize equity benefits without the financial strain of systemwide fare-free programs.

For cities unable to implement full-scale zero-free programs, targeted strategies provide a viable solution. Offering free or subsidized fares to specific groups, such as students, seniors, and low-income individuals, allows agencies to deliver meaningful equity benefits without straining their budgets.

After Houston Metro completed the study in 2019 and found that zero-fares could significantly increase ridership but also lead to higher operational costs, the agency decided to shift to a fare structure that offers free fares through institutional programs, in addition to fare capping for all users. This model balances accessibility with financial sustainability.

Similarly, in St. Petersburg, the Pinellas Suncoast Transit Authority (PSTA) overhauled its fare- payment system to include fare capping and discounts for seniors, disabled persons, and students. This approach not only simplifies the payment process but also ensures that the system is inclusive, catering to a diverse range of passengers.

The San Francisco Bay Area’s Clipper Start program is a pilot initiative that enhances equity through targeted fare discounts. Eligible residents earning 200% or less of the federal poverty level receive a personalized Clipper card, which automatically applies a 50% discount on single-ride fares across participating transit agencies. This approach ensures affordable access for those who need it most.

In Los Angeles, Metrolink offers an innovative Mobility-4-All program for their riders. Anyone who presents a valid Electronic Benefit Transfer (EBT) card when purchasing a ticket receives a 50% discount on their fare, which includes transfers to other agencies. Metrolink’s ticket-vending machines can validate eligibility automatically, reducing administrative burdens.

San Diego’s MTS also stands out for allowing online applications for reduced fares. Using AI to verify eligibility streamlines the process and eliminates the need for riders to visit a transit center–an example of user-centric design driving adoption.

Moving Forward

So, where does this leave us in the debate over zero-fares? While the idea of free rides for everyone is appealing, the practical challenges it brings—overcrowding, security issues, and financial instability—are too significant to ignore. Instead, we should focus on sustainable solutions that combine flexibility, financial viability and high service quality.

By embracing advanced fare systems and targeting subsidies to those who need them most, agencies can balance equity and sustainability. Public transit is more than a service—it’s a lifeline. By focusing on innovation and equity, we can build systems that truly work for everyone.

Carl Commons is the incoming CEO of INIT North America. He’s spent nearly 20 years in the fare industry based in the U.S. for INIT, Inc., the past five years as chief sales officer.

(Sponsored content)

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Avoiding the Interchange Squeeze

Open-loop payment systems are a simple and consumer-friendly option for public transit agencies. They are increasingly deployed throughout the world because they benefit tourists and new and existing riders alike. Anyone can simply tap a card they already own and ride.

The experience is faster and easier for customers than closed-loop systems, attracting those who may otherwise choose an alternative form of transportation. Open-loop payments also promote equity for the most vulnerable by breaking up payments into smaller consumable bits and eliminating tied up funds for trips that may never get used.

Yet other parts of the world are far outpacing the U.S. in open-loop rollouts.

U.S. transit agencies have expressed a key concern–the impact of interchange rates on their revenue. This may weigh down a transit agency’s net revenue since credit and debit networks assess interchange on every transaction.

Let’s look at the different approaches to interchange regulation and explore ways to combat high interchange rates.

Why are Interchange Fees of Greater Concern in U.S. than Other Regions?
There are three approaches to interchange regulation around the world: Regulation free, fully regulated and somewhere in between (partial regulation). However, the way regulators implement the rules can significantly impact the math for each approach.

Europe – Fully Regulated: The European Union determined that unregulated interchange fees for both credit and debit networks inhibited innovation and posed obstacles to progress in the market. The EU responded with Regulation 2015/751 to cap fees for debit at 0.2% and credit at 0.3% of the value of the transaction. These low interchange rates have proven successful, and they have undoubtedly contributed to the growth of open-loop payments for agencies large and small.

Canada – Regulation “Free:” Canada has yet to regulate interchange fees directly. Instead, the government has given a single entity exclusivity in the Canadian debit market, provided it follows a voluntary code of conduct.

This indirect influence has helped interchange rates for debit in Canada remain relatively low. Interac, owned by a consortium of Canadian banks, retains this exclusive status, and both Visa and Mastercard are excluded from providing fully domestic debit cards. To maintain this status, Interac has established a “low-ticket rate” that is roughly CA$0.02 (US$0.015) per transaction.

The Canadian interchange rate for Visa and Mastercard credit is around 2% of the transaction amount.

U.S. – Limited Regulation: To ensure interchange fees for debit transactions were “reasonable and proportional to the costs incurred by the issuer,” the U.S. established Regulation II in 2011, known as the Durbin Amendment. This set interchange for debit networks at a fixed fee of $0.21 plus 0.05% of the transaction amount. Issuers can charge an additional $0.01 if they have certain fraud-prevention practices in place. To date, U.S. regulators have not capped interchange fees for credit transactions.

The Durbin Amendment doesn’t differentiate between merchants that have higher average transaction amounts and those that accept a large volume of small transactions, like public transit agencies. For example, the $0.22 fixed-interchange fee would amount to just 0.6% of revenue for retail merchants with an average debit card transaction of $38. That interchange fee makes up a much higher share of costs on a $2 transit fare.

We find that public transit riders often prefer to use debit cards to pay their fares. For this reason, we’ll focus on debit networks. Let’s compare the impact of interchange on a $2 debit network charge for all three regions or countries using the rates above.

This may be why many public transit agencies in the U.S. continue to rely on extended period passes or allow customers high value-load thresholds for closed-loop cards. They want to raise the average sales amount to reduce the impact of interchange fees. But that comes at the expense of equity for customers who may struggle to pay higher up-front fees.

European agencies have been moving to adopt more consumer-friendly open-payments systems at a much faster rate than agencies in the U.S.

What Can We Do Today to Mitigate U.S. Interchange Fees?
There are two strategies that backers of open-loop payments are employing to combat the impact of interchange rates in the U.S.

1. Aggregating transactions: Historically, suppliers of open-loop payment systems would authorize payment for every transaction that takes place at a fare validator. Each of these transactions normally has been a few dollars or less. Today, many suppliers have implemented methods to aggregate several fare transactions into a single payment.

Aggregation ensures that a single, larger, payment authorization replaces two or more smaller authorizations, reducing the impact of fixed-interchange fees.

Aggregating payments by nature does bring with it a measure of risk. For example, If the aggregation period covers more than 24 hours, an agency might find that a whitelisted user had taken multiple rides on a card that is no longer active. That’s why some technology suppliers are providing simple configuration settings, such as aggregation-duration parameters, that can help agencies determine their measure of risk.

2. Special transit interchange rates: In the U.S., credit and debit networks have complex pricing tables that generally split cards into “regulated” and “exempt”– meaning that some banks issue cards that are exempt from federal regulations. The debit networks have more flexibility to determine pricing for “exempt” cards. The tables have pricing for different types of cards and transaction types.

Discover cards are predominantly “exempt” and qualify for their reduced pricing (which is not publicly published but is rumored to be under 2%). Mastercard and Visa debit cards are predominantly “regulated,” and, as such, these networks have often pegged their interchange fees at or near the upper federal limit.

In coordination with Visa, Cal-ITP, a state-backed program in California designed to help transit agencies procure open-loop technology, is currently piloting a special rate available for open-loop payment systems, mainly in California. This lowers average interchange costs from approximately 6% to 2.5%. There is optimism that these reduced fees will be permanently established and will extend to the rest of the nation if open-loop payment suppliers and agencies are vocal about their interest in joining the program and implementing open-loop systems. (Full disclosure: My company is part of the Cal-ITP program through a master service agreement, and we are actively lobbying for the improved fee to be made permanent.)

What Does It All Mean for U.S. Transit Agencies?
Transit agencies in the U.S. have looked at open-loop payments for quite some time and have resisted embracing the technology.

Interchange rates in the U.S. remain high when compared with Canada and the EU, and it is up to us in the public transit industry to combat high fees by pushing for reduced public transit interchange rates. Policy can be used as tools to protect consumers, incentivize innovation and promote the use of public transit. The industry should pressure government leaders to improve interchange regulations so that small charges on debit cards are not exposed to such high rates.

As an industry, let’s call on our congressional representatives to enact more sensible regulations. Transit agencies, tell the credit and debit networks that you want open-loop payments, so they see the demand and ask them for lower interchange rates–competitive with the rest of the world. Being vocal about our interests will make the value of an investment in open-loop payments increase even more.

The companies setting interchange fees are listening, as well. The more interest AmEx, Discover, Mastercard, and Visa hear from transit agencies and their customer bases, the greater the likelihood they will implement interchange fees that reflect the value of those transactions to their core business.

Innovations in the way payments are processed by providers of open-loop payment systems are already lowering interchange charges that transit agencies face today. Compared with legacy open-loop systems, this new generation of technology offers substantial reductions of the interchange charges transit agencies face.

Putting it all together, the reasons for transit agencies in the U.S. to adopt open-loop payments look better than ever. Now is the time to reconsider open-loop payments. The value proposition is strong today, but we can do even better.

Kevin Burgess is director of payments for Bytemark. He has spent more than 10 years delivering products and services for public transportation agencies globally, primarily focused on innovative payment systems with a fintech approach.

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Building Flexibility into Fare-Collection Systems

Contactless EMV payments are being recognized the world over as an essential way to modernize fare collection, improve rider experience and encourage more widespread public transport use. While transit agencies and operators are acutely aware of the urgency to get to “destination contactless,” their route from A to B is not clear.

How does an independent bus operator or a transit agency in a smaller urban or rural community, begin to tackle the task of creating a system for contactless EMV payment acceptance? They might look to the “gold standard” examples of tap-to-ride systems in London, New York, Sydney and Singapore and conclude that they have none of the resources needed to emulate them. Be that knowledge and expertise, millions of dollars of investment or the luxury of time and manpower to project manage a system build.

The pandemic brought into sharp focus the problems these small to midsize agencies can face as a result of not being able to accept contactless payments. Many, having removed cash from their vehicles altogether to reduce driver interaction, offered zero-fare rides. This solution, though unsustainable, at least enabled the continuity of services for people who depend on them to get to places of work and study.

Single-Supplier Procurement
As these operators now look for a longer-term answer, many feel excluded from the potential of contactless EMV ticketing. That’s largely because of the way these systems have been procured. Traditionally, transit agencies or authorities put out a tender for a sole supplier to provide a holistic system, including card validation hardware, a fare calculation back office and connections to acquiring banks. Requirements are highly-specified and bidding vendors must prove they can deliver every aspect.

The problem with this is that you end up with only a small number of suppliers offering fully integrated systems that can bid. There is very little competition in the marketplace, so the cost of procuring the solution naturally inflates. Smaller suppliers–tenacious innovators that can efficiently deliver part but not all of the solution–get overlooked.

New Approach to Tenders
This procurement model is broken–and fresh thinking by the likes of Helsinki Regional Transport Authority (HSL) is sparking an alternative approach. HSL broke up the tender for its contactless EMV transit payment system into smaller components. This allowed suppliers providing payment processing, payment readers and acquiring services to partner to provide a combined solution, now deployed in Helsinki and other cities.

The California Department of Transportation (Caltrans) has taken a similar approach. Its California Integrated Travel Project (Cal-ITP), aimed at making it easier to use public transportation, is behind several contactless payment demonstrations in the state. Pilots in Monterey, Sacramento and Santa Barbara have turned heads in the industry, as proof points of a modular system using technology from a range of suppliers.

Caltrans and its parent, the California State Transportation Agency (CalSTA), are now inviting vendors to bid to secure a role in future deployments. Successful vendors will be featured in a “mobility marketplace,” at which transit agencies can shop for the key components they need to build open-loop EMV fare collection systems.

This takes the burden of procurement away from transit providers, serving them a choice of pre-approved vendors whose products and services plug-and-play together. This is the right way forward on so many levels. It nurtures competition, innovation, collaboration and economies of scale. It empowers transit providers to choose a solution that matches their needs now but that also adapts to emerging technologies.

It also facilitates interoperability, creating potential for seamless, secure tap-to-ride payments across multiple transit agencies’ networks. Wherever a contactless EMV system is in play, there’s potential to layer a multioperator fare cap over individual agencies’ fare structures to unify the rider experience across a state or even a country.

Seeking Simplicity
It could be argued that dealing with one organization makes projects easier to manage. In fact, you often hear the “one throat to choke” theory in business, which suggests that, when something goes wrong, it’s helpful if there’s only one vendor to find accountable.

However, we’ve seen many examples where in reality, this relationship reduces transparency, and adds complexity and cost. Those best laid plans, the fine detail of your wants at the start of a project, inevitably need adjustment. With a locked-in, sole vendor contract, issues can be clouded, re-specification can be slow, and delays costly.

Establishing a procurement process that welcomes disruptive newcomers to bid will unlock innovation in the transit industry. Assembling payment systems built for interoperability, agility and openness will yield faster progress and better value for stakeholders than relying on a sole supplier to set the pace for development.

With a modular system, transit operators and agencies can secure agreements that support the growth of their solution during its lifetime, defining and adding new scope when needed. The future is something to be embraced, rather than feared.

The culture of collaboration that multisupplier fare collection projects naturally encourage provides a productive environment for new ideas to be tested, and prototyping and product development accelerated. This will be the key to making contactless EMV payment acceptance on public transit universal–and moving towards the next goal of interoperability.

Amin Shayan was part of the founding team of Littlepay, a transit transaction processor and payments service provider. He became CEO in 2017. Before joining Littlepay, he worked in investment banking in New York and London.

Using Data to Navigate Demands of the Pandemic and Its Continuing Aftermath

Ticketing data provides a rich source of information that can make our networks better, increase public trust and encourage use of public transport. Punctuality, frequency and reliability have long been the drivers of public transport patronage, but as more passengers return to public transport, safety is an increasing concern for PTOs and passengers alike.

So, how can PTOs use and share data to make public transport safe, effective and trusted?

A Shifting Network for Shifting Behaviors
Public transport is a key risk area as governments seek to limit the spread of COVID-19. PTOs around the world have faced fluctuating levels of restrictions, creating uncertainty for passengers and challenges for transit authorities.

New Zealand, for example, implemented some of the earliest severe restrictions in the world, placing capacity limitations on public transport, along with other measures, including use of masks and requirements to scan QR codes to facilitate contact tracing.

Capacity limitations can also cause unexpected areas of congestion and pinch points. For example, in cities or along bus routes that are more populated by essential workers, PTOs generally see a greater impact on the punctuality and reliability of their services.

COVID-19 alert levels and requirements can change from day to day, affecting ridership and capacity limits at short notice and placing stress on local government and PTOs. For many PTOs this would demand a nimbler response than they are used to, requiring more comprehensive and immediate understanding of their networks.

Despite the inconvenience of stressed services, public health is a priority in this environment, making compliance with bus and train capacity limits essential. Cities need responsive solutions to maintain public transport safety through disruptions and varying COVID-19 alert levels.

A common and effective solution is network performance and compliance tools. These typically use ticketing and real-time transit information to monitor vehicle capacity and network KPIs, as well as to inform improvements in the network. During lockdowns, these tools can be adapted to enable data-driven, day-by-day changes to the network. Easily adjustable KPIs and an increased granularity of examination by the PTO can drive safer networks.

For example, through the use of vehicle location and ticketing data we can gain specific information on exact routes, times and trips that are overloaded or those with slack that can be redirected to areas that are at or exceeding capacity. Wellington’s Transport Authority used existing real-time information data feeds and ticketing information to gauge trip-by-trip demand and adherence to restrictions.

An adaptable tool with adjusted load factors can alert PTOs to vehicles making noncompliant trips on the same day, allowing adjustments to maintain service levels and safety for the next day’s service.

So how can PTOs respond when faced with capacity restrictions on transit vehicles? Comparing real ticketing data against adjusted limits can give transit agencies meaningful insights into whether their vehicles are meeting capacity restrictions and how the network responds to iterative changes. Fluctuating regulations can mean PTOs must reduce the number of passengers they allow on board. For example, here in Wellington, regulations meant that in May 2020, buses were limited to 20-40% of vehicle capacity, while the city still saw strong demand of around 46% of regular customer levels. Transit agencies have faced similar problems in many other cities, as well.

Through a strong understanding of public transport data, Wellington was able to maintain a punctual, reliable service, and passengers could travel with the confidence their journey would be safe regardless of New Zealand’s alert level.

Collaboration and Contact Tracing
Some transit agencies may be required or proactively wish to assist with contract tracing. Effective contact tracing on public transport is incredibly difficult. One common method, QR code scanning, is inconsistently enforced and requires new applications for passengers to use, along with additional effort on their part. The QR codes are connected to a vehicle rather than a specific trip or passenger, increasing the workload for contact tracers.

Transit agencies using account-based systems already have reliable contact information for many passengers, as well as a record of transport services those passengers used.

This creates the opportunity for automated processes and information sharing.

When a passenger tests positive for the virus, the transit agency can provide an anonymous summary of the number of affected passengers to the health authority to gauge the impact. Passenger privacy may mean that the health agency must pass a regulatory check before contact information is passed on.

This provides more accurate data to contact tracers without increasing the burden on passengers or drivers, and provides contact tracers with statistics and precise contact information to sufficiently allocate resources and respond.

Passenger privacy remains a concern through this process, so PTOs must fully understand their obligations to their customers and their health authorities. This process is private by design and a ‘set and forget’ customer experience. Once registered (unless they opt out), passengers have peace of mind that their information and movements will be kept confidential unless an exposure occurs.

Public Transport Data for the Public
Increasing transparency and understanding of public transport data may be difficult, but it’s ultimately beneficial to the mission of enabling more informed decision-making within PTOs and greater public confidence.

The examples outlined here aren’t revenue-focused or even compliance-focused. These are projects that illustrate data’s power to build trust and confidence in our networks and increase passenger safety.

There is so much power in harnessing existing and new data streams to create sustainable cities and happy passengers. We believe providers and passengers should be empowered to design and engage with better public transport networks through more accessible and digestible transit information.

Data can be a valuable tool with which to navigate the demands of the continuing pandemic and its long-reaching aftermath. As an industry, we need to simplify the process of collecting, managing, and creating value from transit data, enabling authorities and operators to easily understand what is happening in their networks. That will lead to continuous improvement of network performance, underpinning trust and confidence in the network.

Ultimately this results in a world where public transport can be relied upon as a key lever to decongest and decarbonise urban areas.

Miki Szikszai is an experienced executive and director, specialising in commercialising sustainable services in transit and mobile. He is the CEO of Snapper Services.

Dallas Delaney is a Relationship Manager at Snapper Services, with a background in international business development.

Using Blockchain to Establish Trust among Parties to Accelerate Growth in the Mobility-as-a-Service Market

It seems that city leaders and other officials around the world are pinning their hopes on mobility-as-a-service (MaaS) to help them reduce traffic congestion, slash greenhouse gas emissions and improve mobility for the masses.