OpenFare and Classic Open Loop. Pros and Cons

In short, classic open loop systems and OpenFare are account-based. They keep the patrons’ account data in the cloud, not in the memory of the closed loop cards. The difference between the classic open loop and OpenFare is the following:

  • The classic open loop systems use a remote cloud to keep accounts. This works well enough for transit systems with stationary validators because they are connected to the cloud with fast telecom lines
  • OpenFare proactively synchronizes its validators with the cloud, so the account data is right there, at the validator, when the validator needs it.  This provides fast tap and decreases the fraud risk. This is important for transit systems applying wireless validators

You can find the detail description of both open loop and OpenFare systems behavior there. Here we will talk about advantages and disadvantages of both systems. The differences are summarized in the following table and further explained below.

Feature Classic Open Loop OpenFare
NFC tokens bound to account balances limited number of credit and debit cards any credit, debit, bank card; some ID cards; other NFC tokens
Validator cost high low
Wireless traffic cost high: cellular data tariffs low with data broadcast
Transaction cost for patrons high for debit cards low
Transaction cost for transits high for credit cards low
Fraud risks high low
Patron experience worse better
Can fully replace closed-loop system on vehicle-installed validators? no  yes

Cards and Tokens to Use

Classic open loop transit systems work only with a subset of credit and debit cards. OpenFare can work with all credit and debit contactless cards and many non-cloneable tokens, such as bank cards, ATM cards, contactless driving licenses and other IDs, contactless Apple and Android gadgets.

OpenFare has better synergy with modern services, such as Google Wallet, Android Pay, and Apple Pay.

Lower Validators Cost

Classic open loop systems require that validators are fully-certified card acceptance devices from the payment systems standpoint. The OpenFare validator is simpler. It does not do point-of-sale transactions. It only reads the card (token) identifiers. This reduces the cost. This becomes even more evident in the United States where EMV (smartcard) transition is on its way. OpenFare does not require the validators to undergo such transition.

Lower Wireless Traffic Cost

In large scale transit systems with buses and streetcars, OpenFare requires wireless data broadcast that is cheaper than traditional wireless traffic the classic systems would consume to propagate stop-lists.

Lower Per-Transaction Costs for Patrons

Whereas the credit cardholders do not endure the cost of transactions, the debit and bank (ATM) cardholders usually pay to their banks some per-transaction fees (or must pay higher fees to maintain accounts with higher limits of transactions per month). Classic open loop systems usually aggregate several trip fares into one daily payment transaction. OpenFare aggregating factor is higher. Patrons can prepay once an amount sufficient for several days of using transit.

Lower Per-Transaction Costs for Transit System

The per-transaction costs that credit card acquirers are responsible for depend on transaction amount average. Less average transaction amounts are relatively more expensive. The low aggregating factor that hurts debit card patrons also hurts credit card transit systems.

Apart from that, the credit card issuers benefit from the credit card business only if an average transaction amount is relatively high ($20-$30 and up). While the share of transit transactions is relatively small in a credit card statement the banks issuing credit cards are happy. They can become aggressively reluctant to support this business if the transit share grows. Do not forget that banks are members and shareholders of the main card payment systems. Active penetration of classic open loop may force the payment systems to revise so-called interchange fee policies and shift more burden to the acquiring side (transit systems).

Patron Experience

As we already know, the classic open loop systems may have embarrassing patron traps at tap-off turnstiles or during fare enforcement inspections. OpenFare does not have these traps. If the patron is allowed to access the transit system he or she surely have enough funds to travel.

On the other hand, OpenFare requires that patrons prepay some transit balances. Five or so years ago this was a killing factor. Today, when almost everybody has a smartphone and can top-up the account and use the system within seconds, this is not an essential problem.

Fraud Risks

Classic systems endure the risk of first fraudulent transaction on buses and costs of more extensive fare enforcement policies (to deal with tap-off traps). On the other hand, OpenFare has to deal with regular e-commerce fraud risks when someone uses fraudulent methods to top-up an account.