Open-Loop Payments Help Advance Smart City Innovation

The concept of the connected commuter is gaining momentum, driven by the increasing reliance on digital solutions for travel and commuting needs.

PYMNTS Intelligence research highlighted this trend, revealing an increase in the prevalence of apps and platforms to streamline everyday commuting journeys.

This growing shift has led to an influx of traffic into urban centers, prompting companies to embrace digital commerce initiatives aimed at enhancing mobility and simplifying the urban transit experience.

In an interview with PYMNTS, Richard Combs, head of transit and enabler relationships at Discover® Global Network, highlighted the expanding array of mobility options available to these connected commuters, from ridesharing and scooters to eBike transportation technology, all designed to address last-mile travel needs.

The diverse range of transportation options directly intersects with evolving payment trends, with data showing strong cardholder preference for mobile wallets, particularly in pay-as-you-go transactions.

“Seventy-three percent of contactless transit transactions at Discover Global Network currently use mobile wallets, and we expect that number to grow [over time],” Combs said, underscoring a shift toward digital payment solutions that enhance the modern commuter experience.

Additionally, consumers have the option to integrate their Discover-branded credit, debit or prepaid cards into their preferred mobile wallets, further improving accessibility, Combs said.

However, he stressed the importance of streamlining these diverse payment options into a unified, single-source solution, one that “would make the trip from curb to curb as seamless as possible.”

Making the Case for Open-Loop Payments Technology

Smart cities are at the forefront of shaping urban environments, using technology to optimize infrastructure, payments and services for residents.

However, as cities become increasingly digitized, concerns regarding security and privacy have surfaced, compounded by the vast amount of data generated by smart city ecosystems.

This is where the value of an open-loop environment comes into play, reducing fraud risks while protecting against physical cash theft, Combs said.

Transitioning from proprietary prepaid transit cards to an open-loop system also offers transit agencies cost savings, he said, including expenses associated with managing and handling cash, mitigating cash theft and shrinkage, issuing proprietary cards, potential losses when customers misplace their cards, and assuming all fraud losses with proprietary systems.

Outsourcing card issuance to banks and using payment networks’ security technology can help address concerns about lost, stolen or fraudulent cards.

“The industry sees billions of transactions per year across many merchants, and we have systems and products designed to help detect and prevent fraudulent transactions,” Combs said. “Transit agencies can take advantage of these investments and learnings when they accept open-loop payment devices.”

Despite these benefits, challenges remain, particularly in rapidly granting customers access to transit systems when accepting open-loop contactless payments.

“The biggest challenge for the world’s largest transit systems is that they must grant customers access to the transit system in milliseconds,” he said. However, “there is simply not enough time to perform a full payment transaction with the card issuer.”

To address these hurdles, he emphasized the importance of adopting technology that enables payment terminals to quickly authenticate valid cards, providing a seamless commuter experience. Additionally, deploying software in agencies’ back-office systems can facilitate fare recovery in cases of declined payments, further enhancing transit access for travelers.

Simplifying the Connected Commuter Journey

As commuters increasingly seek flexibility in their payment methods, Combs underscored the need for fast, secure and reliable technologies to enhance the commuter experience within smart city ecosystems.

The introduction of in-vehicle payments, which enable passengers to make purchases within vehicles without additional equipment, marks a step in this direction, he noted.

Additionally, he highlighted that advancements in technologies by way of biometrics and artificial intelligence could be a future trend in ticketing and payment. The advancement in technology will play a role in tackling some of the complex urban challenges the transportation industry faces today, he said.

The integration of open-loop payments technology represents more than just a practical solution for urban transit, he said. It signifies a step toward the realization of the smart city vision. By embracing digital innovations in payments and mobility, cities can streamline commuter journeys and lay the groundwork for more sustainable, interconnected urban ecosystems.

Ultimately, these innovations will collectively shape the future of digital payments within smart cities, Combs said, promising greater convenience and efficiency for urban commuters.

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