As the financial market tightens, consumers understand that every dollar counts. They are looking for ways to make their money work harder. On the other side of the transaction, public transportation agencies are discovering that they can make the best of difficult economic times by motivating loyalty among their riders—encouraging use of a branded smart card that gives back to the user.

Consultant Andrew Morris of Morris Advisors Inc. in Johns Creek, GA, compared a transit-specific smart card to the “loyalty card” offered by Starbucks. The cardholder has the advantage of pre-loading a dollar value; the card issuer benefits from its “enrolled relationship” with the customer. This connection between company and customer allows for benefits to the card user, such as special offers and gifts, while allowing the business to save money on processing payment.

“One of the key measures of a successful loyalty program,” said Morris, “is that it’s viable. What is a transit agency’s objective for a loyalty program—increasing ridership, encouraging more people to use smart cards?”

Phil Rubin of rDialogue, a loyalty marketing consultant, noted similarities between transit loyalty programs and similar promotions conducted by airlines. He called loyalty marketing by transit agencies “a great opportunity” that can personalize results at a local level. Where an airline might offer a hotel or a restaurant discount for a frequent traveler to a specific city, he said, a transit agency could tie in with services located near a specific rail station or bus stop. “Wouldn’t you be willing to pay more for this opportunity if you’re that business?” he asked.

The transit agency could also use loyalty to encourage its riders to fund their cards in less expensive ways, such as providing free trips in exchange for a specific level of funding. ATM debit cards provide substantially lower processing fees for fare purchases and farecard reloads than major credit cards, according to Morris, so this shift can mean real savings for a transit system.

A rewards program can offer its customers more than the hard benefits of points, discounts, or cash back; it also can provide such “soft” benefits as customized communication by cell phone or text message, or other forms of preferential treatment.

Moving Forward with Mobile Phones
Mobile phones represent a significant new potential revenue source for transit agencies—from coupons to offers sent through text messages. Experts call this a high-response program because people can opt-in (vs. a generic spam outreach) and sign up for offers—and, it is very attractive to advertisers. For agencies to take advantage of this revenue stream, they could solicit a cardholder’s mobile phone number as part of setting up the automatic reload function.

“Transit agencies have information about their customers with smart cards—when they get on board and off, where they go,” Morris said. “They can use that information to send a message to a cardholder: the train is on time, and here’s a free coupon for a cup of coffee at a convenient location.”

Changing technologies also may allow mobile phones themselves to be used to pay transit fares in place of smart cards. This approach, called Near Field Communications (NFC), has two major aspects.

First is the payment token, which refers to the fare medium (smart card, credit card, cash—in essence, how people use the phone to make a payment).

“For example,” he said, “it could be a bar code on the face of the phone, to be read with a bar code reader, but we don’t have bar code readers in transit; we have contactless fare readers. A phone equipped with an NFC chip would give the phone the same kind of application as a farecard: the holder can just tap the phone and enter the system.”

The second component concerns how riders can fund their transit fare account. They can make a direct payment at the gate using a bank credit card—either a card with a chip or a phone with the bank’s credit card on its chip—or use prepaid accounts into which they could load value in several ways.

The basics behind the NFC operation:  The phone needs a chip with a little radio antenna, which can be read by the reader for bus or rail. “The challenge,” said Morris, “comes from getting the chip into the phone, because that depends on the manufacturers of phone devices and cell phone carriers.”  After that, there is a need for a software application in the phone to activate the chip, but since every phone also has other channels—such as text messaging and a browser—they could also be used.

People appreciate recognition and rewards, and transit agencies want to keep their regular riders happy. The growing integration of electronic technologies into fare collection, experts note, will allow the two sides to meet each other’s needs.

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