While rapid transit services across the world have been steadily abandoning cash for smart cards or even contactless pay in the case of the London Underground, the New York City Subway, which delivered over 1.72 billion rides in 2017, making it the busiest rapid transit system in the West, has lagged behind technology-wise. The New York City Subway still relies on paper tickets and a smart card called the MetroCard, a thin plastic card on which the customer electronically loads fares. Unlike most smart cards like London’s Oyster or Hong Kong’s Octopus, where the Radio Frequency Identification (RFID) receiver is pressed against a reader, the MetroCard is swiped through a reader for entry.
That lag might soon close, as the New York Metropolitan Transit Authority (MTA) plans to introduce a new payment system in 2019 that allows riders to enter the stations by tapping their credit or debit card at turnstiles. In preparation for this plan, the largest banks in the US have begun to issue contactless cards that will work with these new systems.
“The credit card and banking industries are working in parallel with us,” says Patrick Foye, the president of the MTA. “This is where transactions – not only in transit but outside transit -are increasingly going to be in the United States.”
How Contactless Cards Work
Contactless cards, prevalent in countries such as the United Kingdom, are used by simply holding the card in front of a reader, whereby payment is automatically deducted in manner not too dissimilar from mobile payment solutions like Apple Pay and Google Pay. The cards utilize RFID or Near Field Communication (NFC) chips to communicate with the readers. While magstripe swiping is easily cloned, contactless payments are authenticated, with the data associated with the card on file encrypted and constantly changing. Also, since no signature or PIN is required, contactless payments are typically limited to small value sales, known as a floor limit.
Visa predicts that as many as 100 million of its cards in the US will be converted to contactless by the end of 2019. American Express and Capital One have already begun the transition, with the former’s recently retooled gold card already enabled for tap-to-pay, along with the latter’s Quicksilver, Savor, and Venture card portfolios.
Disruptive Costs to Begin: Concerns
The transition to contactless payments will not come without difficulty, however. As the United States has transitioned from magstripe swiping to PIN and Chip insertion, there have been months of consumer frustration because the checkout process got longer, with ill-trained store clerks struggling to field the new technology. Merchants who had to deal with higher fraud losses as they endured a lengthy equipment-certification process were also having a hard time adjusting to the new changes.
However, adopting to contactless pay might not necessarily have the same growing pains as switching to a PIN and Chip system. Roughly half of all in-person transactions in the US occur at a merchant that’s already enabled to accept tap-and go payments. Moreover, a contactless payment is processed far quicker than its PIN and Chip counterpart, the former taking no more than two seconds compared to the 10 to 39 seconds for the latter.
There is still work to be done, however. Thirty percent of the top 100 merchants in the US, such as Walmart, have yet to adopt contactless payments. Some retailers have been hesitant to allow contactless card acceptance in their stores because they would mean they would also have to implement mobile payment technology as well, which can be expensive.
For banks, however, the adoption of contactless payments would help accelerate change. By transitioning to contactless, banks could boost profits by $2.4 billion and eliminate $22.2 billion worth of expenses in the next five years, according to a Visa-sponsored report by researches at A.T. Kearny. They believe that the change is made possible because cash is taken out of the equation.
The Bottom Line
The largest transit system in the United States, and perhaps the Western world, is finally ready to catch up technology-wise, with plans to implement a contactless card system in its turnstiles in a manner not to dissimilar from the London Underground. To help facilitate this, banks have begun to issue contactless cards. There are immediate benefits, such as processing payments faster than PIN and Chip cards, and having a floor limit as a security feature, but there are concerns that some merchants might be resistant to the technology, as implementing contactless payments also requires them to implement expensive mobile payment solutions as well. However, on the banking side, there is the potential to boost profits and save money.