So Long, Subway Swipe – Payments Analyst Thomas McCrohan Assesses Contactless Fares

Jim Gorman
June 17, 2019

Research  Technology/Media/Telecom 

Candidate Hillary Clinton’s highly-publicized 2016 NYC subway visit featured her swiping a MetroCard five times to gain entry. It elicited derisive snickers outside the city, but knowing nods from New Yorkers familiar with the subway swipe stutter step. That daily annoyance could become a thing of the past, when New York’s Metropolitan Transportation Authority’s (MTA) new tap-and-pay card system, OMNY (One Metro New York), gets phased in over the next 18 months.

Contactless payments have faced a number of challenges in reaching widespread adoption, but as Mizuho’s Financial Technology and Payments Equity Research Analyst, Thomas McCrohan explains, transit is the first step in accelerating broader contactless adoption across the United States. McCrohan taps in on its benefits, as well as its ultimate impact on the transportation industry. 

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The ability to wave your smartphone at the turnstile or pay with your contactless credit, debit, or digital wallet is meant to be a big convenience, saving riders from the often frustrating process of buying or reloading subway tickets. And the current 16-station rollout is just the beginning. The plan is that by late 2020, all NY subways and bus routes will be outfitted with OMNY technology, at which point the MTA plans to add additional fare options such as time-based passes, reduced fares, and student fares. (The current rollout only allows for full-fare, pay-per-ride entry.) The traditional MetroCard, a pre-paid, magnetic-stripe paper ticket, will still remain a payment option, but it is set to be phased out by 2023.

As McCrohan notes, all of this fare volume will move to OMNY, and he expects credit card companies to benefit. Assuming a full rollout of the system by 2021 and Visa and Mastercard accounting for 90% of total transactions on OMNY, McCrohan estimates a potential of $67 million of revenue to the two companies from the initiative.   However, arguably the most significant benefit stems from users building a daily tap-and-go habit, creating familiarity with contactless technology among consumers. For companies like Visa and Mastercard, this convenience will enable more every-day use opportunities across industries, particularly on a retail level.

 If I can make it there…

Approximately 80 out of the top 100 merchants in the United States are currently tap-and-pay enabled, but the number of actual users is lagging, as card issuers try to catch up and roll out contactless credit and debit cards to their customers. In London, where tap-to-pay options for public transport have been available for several years, Visa found cardholders that tap to pay for transit had a meaningful lift in overall card usage versus non-transit users.

In other countries where tap-to-pay usage is more widespread, contactless acceptance in everyday spend categorieslike transit, has led to a more rapid displacement of cash. By getting consumers in the habit of engaging on electronic or digital payment platforms, it will become second nature. And as they become more comfortable with the technology, it will increasingly be used for basic necessities such as food, coffee, clothing, electronics, and more.


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