Intelligent Transportation Systems - Fare Payment Systems

In recent years, there has ben an increasing emphasis in the public transportation sector in incorporating more advanced forms of fare payment into everyday transit operations. With this increasing focus on new technologies in public transportation operations comes the need for comprehensive evaluation.

As smartcards are increasingly being used as an advanced form of fare payment media, it is also important to look at how they fit into other recent changes in technology, such as the cellular phone revolution. Moreover, it is also useful to explore the potential benefits of these recent changes in technology as forms of advanced fare payment above and beyond that which is offered by a typical smartcard system.

With the phenomenal increase in cellular phone usage in the late 1990’s, the potential now exists, albeit somewhat tenuously in the current day, for their use as a form of advanced fare payment system. Additionally, handheld computers, or personal digital assistants (PDA’s), have a very similar potential for this same use. This report explores some of the possible ways that these technologies may be able to impact fare payment and collection in urban public transportation systems.

Cellular phones, or mobile phones, have been around for over 50 years. However, in the past several years, their increase in use has been extremely rapid. Mobile phones are increasingly being developed for uses beyond simple wireless voice communication. Currently available phones come with a broad range applications, including wireless web browsing, and digital music playing.

The concept of cellular phones dates back to 1947, when researchers first began looking at mobile devices in cars. However, it was not until 1977 when the first trial of cellular phones began with 2000 users in Chicago. Two years, later, in Japan, the first commercial cellular service began, and a new era for wireless communications was on its way. (Benks, 2000). What characterized many early cellular phone systems was their lack of standardization and uniformity. To cope with these early problems, cellular phone companies early on found the value of negotiating agreements with others to aid network interoperability. This standardization in both the US and Europe increased in the late 1980’s, and by the early 1990’s, many cellular phone companies were switching from analog to digital formats (Farley, 2000).

Today there are several main types of second generation digital cell phone technologies. These technologies allow the phone to communicate with the wireless network. To increase network interoperability, cellular phone companies have formed agreements with one another, thus enabling mobile phone users to use their phones across different platforms.

One such agreement among the largest phone companies resulted in the technology known as GSM to originate. GSM, which stands for Global System for Mobile Communications, supports 250 million phones and around 65% of the total mobile phone market worldwide to date, and it is expected that this will increase to over 500 million by 2002.

Originally formed in Europe in 1982 as an attempt to create a uniform, Europe-wide cellular phone system, GSM technology is now standard for nearly all European phones. The GSM technology allows for an owner of a GSM phone to use his or her phone across country lines, and across continents, as long as one is in a country supporting such technology. GSM is currently the only mobile phone technology that provide data services such as email, fax, internet browsing, and intranet/LAN wireless access. (Benks, 2000)

Currently, over 150 countries belong to the GSM network, including much of Europe, North America, and China. Nearly all phones in Europe are GSM-based phones, and it is this technology that has provided the basis for most mobile phone financial applications.

Code Division Multiple Access, or CDMA, is a similar technology to GSM, and currently operates on some 57 millions phones worldwide. Many of these phones operate in South Korea. CDMA and GSM phone networks are not interoperable, but potentially a removable chip could be purchased that would allow for the use of GSM phones in CDMA territories and vise-versa. A third type of network is Time Division Multiple Access, or TDMA, which was developed in 1994. The TDMA technology supports a much smaller percentage of the worldwide mobile phone market than GSM and CDMA.

Table 1: Digital Wireless Technologies
GSM	CDMA	TDMA
Developed in 1982 in Europe, Released in US in 1996	Released 1996 – Developed by Qualcomm	Released 1994
Examples of United States Providers
Pacific Bell	GTE	AT&T Wireless
Western Wireless	Sprint	Bell South
Sprint Spectrum	Airtouch	Southwestern Bell

Besides the actual type of network that mobile phones operate on, there are additional technologies that allow for wireless internet access. These technologies have been grouped into generations, and each later generation allows for faster and more efficient mobile web access. First generation mobile access devices, including phones, pagers, and other devices, are only capable of sending and receiving text over a wireless network. The main first generation technology, called the Short Messaging System, or SMS, is only capable of sending up to 60 text characters at a time, and transfer rates are oftentimes slow.

The main second generation mobile technology, called Wireless Applications Protocol, or WAP, has become increasingly popular recently. WAP runs on second generation mobile phones, and allows for browsing of the internet, much in the same way that PC-based web browsing makes use of similar protocols. WAP technology enables limited amounts of graphics and text to be transmitted mobily, providing the user a richer web experience that a first generation SMS phone.

WAP enabled phones are not currently widespread, but their use is expected to increase significantly in the coming years. At the end of 1999, an estimated 1.1 million phones with web browsing capabilities were in use. This number is expected to grow rapidly to 79.4 million in 2003. WAP-enabled phones are not the only new type of mobile phone however, and they in actuality only represent a small portion of the digital phone market. Compared with the number of GSM and CDMA phones in use, those with WAP are a very small percentage. One such reason that WAP has not penetrated deeply into the mobile phone market is due to its limited capabilities for future use. Since WAP is a second generation mobile phone technology, many phone makers are not investing in such phones because of the focus on third generation phones that will have much faster data transfer speeds and additional functions.

There are several additional second generation technologies that are also in use. Subscriber Identification Module (SIM) cards are becoming increasingly popular, and these will be further discussed in the following section. Moreover, many companies are developing and utilizing proprietary second generation technologies, such as Japan’s NTT DoCoMo, which will also be discussed below.

Third generation mobile devices are not currently available, but it is expected that Japan will begin producing such devices in late 2001. Elsewhere, this technology will not be available until 2003. The main advantage of third generation devices is the ability to incorporate broadband wireless capabilities into mobile devices. Video capabilities will be the main advantage of such a device.

Personal Digital Assistants have been in existence far less time than have cell phones, but have been largely successful in many developed countries. PDA’s come in many sizes, shapes, and colors, and operate on a variety of platforms. Originally intended for the purpose of being a digital personal organizer, PDA’s have evolved into a powerful handheld computer that can accomplish much more than storing dates and phone numbers. Today, PDA’s can run various types of software, and some are capable of taking pictures, playing music and browsing the internet.

PDA’s were first introduced in 1984 when Psion put its Psion 1 organizer on the market. It was an 8-bit system with 10K of storage and a 16 character display. Psion followed by introducing more advanced models with more memory, larger character displays, and miniature keyboards in the next few years. Psion also incorporated the first link to a desktop PC for data transfers in its Psion 3a model, which was launched in 1993. Apple tried to follow Psion’s success, and in 1993 introduced its Newton organizers. The Newton organizers represented an important breakthrough in PDA technology, as they were the first device to make use of a touch sensitive screen and handwriting recognition capabilities. However, the handwriting recognition was not as reliable or as fast as was hoped, and the Newton PDA’s price of around $800 kept it from becoming popular. Apple finally discontinued its PDA development in 1998 (Long, 2000).

Meanwhile, US Robotics developed and introduced its own PDA in 1996, called the Palm Pilot. Palm Pilots were almost immediately popular, and have dramatically grown since then to represent around 75% of the PDA market. Representing around 20% of the PDA market are Pocket PC based systems that run on a Microsoft platform.

Currently, most PDA’s have no built in wireless capability, but many being sold have accessories that may be purchased which give the PDA wireless capabilities. Like cellular phones, PDA’s can be capable of utilizing WAP technology to access the web. Yet, most PDA manufacturers have favored the use of their own proprietary web browsing capabilities. One of the most common, used by Palm, is called the Web Clippings technology. Currently, it is unclear whether PDA’s will begin to adopt WAP standards or if they will continue along the lines of using proprietary technology to browse the internet (Levitt, 2000).

Technical experts have long been touting the eventual convergence of cell phone and PDA’s. Though currently there are no successful mobile phone–PDA hybrids, several are being developed to come on the market in the next year to year and a half. One of the main obstacles to such devices in the past has been the price -- past hybrid models have run in excess of $800. Yet, with the prices of both cell phones and PDA’s plummeting, these new hybrids are expected to cost much less and be less clunky than their predecessors.

Kyocera, a mobile phone manufacturer, bought the rights the Qualcomm’s original failed attempt at a PDA phone in early 2000, and is planning to begin shipping its new, slimmed-down device in the first quarter of 2001. The device weighs about 7.3 ounces, and is expected to range in cost from $300 to $500, significantly less than the $800 price tag of Qualcomm’s first device. Nokia has also recently released a similar hybrid phone that weighs about 20% more that the Kyocera phone and offers a color display (Yahoo, 12-2000).

Handspring, a PDA manufacturer, has also released a GSM mobile phone attachment for its Visor PDA, but the cost for the attachment alone is $299. This may prove to be too expensive for this type of hybrid device to catch on yet. Microsoft is also rumored to enter into the PDA phone market sometime in the near future. Regardless of the effect of these new hybrid devices on the PDA and cell phone markets, it still remain clear that there will continually be less and less distinction between mobile phones and PDA’s.

Mobile commerce, or m-commerce, represents one of the most promising new technologies today. By the year 2003, it is projected that more mobile devices will be connected to the internet than PC’s. It appears that the benefit for mobile transactions will be in areas where transactions are particularly time-sensitive. According to Anssi Vanjoki, a senior vice president for Nokia, “M-commerce is going to be bigger than e-commerce…M-commerce can take place independently of time and place. It is both spontaneous and instantaneous” (Brown-Humes, 2000). By some predictions, m-commerce will be used to purchase over $100 billion of goods and services by 2005 (Balaban, Oct. 2000).

The potential for any sort of financial transaction taking place through a phone lies in a card that is placed in the phone. The actual form of this card can vary, but every card shares a number of the following characteristics.

Range in cost from $5 to $30 (US). The worldwide shortage of silicon is expected to keep prices for SIM cards relatively high in the coming months.

In GSM phones, a chip card is required to identify a subscriber to the wireless network. This subscriber identity module (SIM) card accounts for a large portion of the smartcards present in the mobile phone sector today. SIM cards can either be included when the phone is purchased, or can be installed subsequently. The memory of SIM cards is also generally erasable, so that applications can be added and removed based on the preferences of the mobile phone user.

Beginning in the summer of 2000, SIM cards were also able to be used inside phones operating on other networks, such as CDMA phones. The chip card in a CDMA phone, however, goes by a different name. The removable user identity module (RUIM) has the essentially the same functions as a GSM-based SIM card. Regardless of the name of the card inside a cellular phone, the application of this card for financial transactions remains much the same. With the card able to identify the user to the network with a high level of security, the ability to make certain transactions, such as stock trading or banking, it present. Yet, most financial transactions that are made over phones with chip cards are only for single purposes. (Cardtech, July 2000)

For example, users of GSM phones can transfer bank funds from their phone, but the SIM card must be based on a platform that is exclusive to that bank. This may soon change, however, as several smartcard platforms are gaining market share. Java and Windows based platforms have been released, but it is too soon to tell how many companies will adopt this operating system for their SIM card operating systems.

Numerous transportation agencies in the United States and worldwide have begun implementing smartcard programs to ease the inconvenience of fare payment. Some notable successes in comprehensive smartcard programs have been the Octopus card in Hong Kong, where nearly 6 million smartcards were in use as of February 2000, and the Seoul smartcard project, where 7.5 million smartcards were in use by late 1999 (“Octopus,” 2000, p.35; Davis, 1999, p. 24). Several other cities are also implementing smartcard projects on a similar scale as Hong Kong and Korea, and many other cities are testing smartcard programs on smaller scales before moving to system-wide implementation.

With smartcard programs becoming more widespread, it is also useful to look at the potential of other technologies to perform the same function. Fare payment with mobile phones and wireless-enabled PDA’s is a logical form of technology that may have use as a form of fare payment medium. While no pilot studies of mobile phone or handheld computer fare payment have been done, it does not preclude such media from being used in the future.

Table 3: Worldwide smartcard uses
(in millions)
Market	1999	2000 (Projected)	% Change
Banking	108	120	11.1
Health Care	57.5	65	13.4
Pay phone	913	1,030	12.8
Mobile phone	200	300	50
Transit	43.5	58	33.3
Pay TV	30	35	16.7
Network access	-	15	-
Loyalty/retail	-	30	-
Other	77	85	10.4
Totals	1,429	1,739	21.7

Three potential fare payment options for cellular phones and PDA’s are identified below as possibilities for public transport fare payment. Each option incorporates a different type of mobile technology, and the potential for actual implementation of each strategy is explored.

One potential option for fare payment is through a program similar to the Paiement CB Sur Mobile program. A credit card or smartcard slot on a phone could be used to buy transit tickets in advance, eliminating the need for such a fare processor elsewhere. Tickets could be bought anywhere a mobily equipped ticketing station was places, increasing the convenience for the passenger.

However, if a wireless device were only able to buy tickets from a ticket machine before boarding, there would be no time-saving benefit to the user. The potential savings would be through the elimination of cash as the only way to buy tickets, through the ability to buy more conveniently, and through the ability to buy multiple tickets at a time. Yet, it is also useful to mention that if a credit card reader were placed inside the transit ticketing machine, there would be no need for a card reader on each cellular phone.

Despite the potential lack of additional benefits that this type of technology may offer, there are nonetheless possibilities for implementation. An advance mobile ticket purchase program would have the benefit of being less expensive to implement than either of the following two options. It could incorporate the Bluetooth short range wireless technology mentioned above to process the transactions. As such technologies become implemented on a more widespread basis, it is clear to see the potential for wireless advance ticket purchase being incorporated into an agency’s fare system.

Another option for fare payment is one that is very similar to contactless smartcard systems in operation and planning stages currently. Yet, instead of the smartcard being placed loose in one’s purse or wallet, it could be positioned inside the cellular phone or PDA. So, instead of waving a wallet or purse over the smartcard reader when boarding, a passenger could simply wave his or her phone or PDA over the reader instead. This would eliminate the requirement of actually completing a credit card transaction with each ride as mentioned above. The operation would instead be based from a debit account, that could either be recharged automatically or by the user when needed.

Funge Systems and On Track Innovations (OTI) announced in November 2000 that they had formed an agreement in which such a form of technology would be developed. It is envisioned that a mobile phone or a PDA would be integrated with an OTI smartcard. The phone would be capable of downloading funds online to the smartcard part of the phone. Once the funds were transferred from the customer’s financial institution to the smartcard, it could be used as an ordinary contactless smartcard for various purchases. Specifically mentioned in this agreement is the possibility that this holds for public transit fare payment with such a device (Funge Inc, 2000).

A final option could be similar to the first option, yet without use of the card slot on the phone. Instead of a slot for a credit-type card, a SIM card inside the phone could be running on an operating system supporting real-time fare payment. A passenger, when boarding a bus or train, could access an electronic wallet on the wireless device, and a reader on the transit vehicle or fare gate could recognize the signal sent from the phone, deduct the appropriate fare from the users debit account, and allow the passenger to board or pass through the gate.

This final option represents a real possibility for the end goal of mobile fare payment, yet it also would be very difficult to implement. It perhaps represents the most efficient and interoperable form of mobile fare payment, which would serve to aid its use by passengers, but also presents the largest barriers to implementation. The necessity for a wireless device on every transit vehicle and train would be expensive, and the potential for an ineffective mobile transaction may be high. Passengers would not like to use such a system if the transaction took too long to process or if the wireless communication between the fare collection device and the phone was unreliable. In the following section, further potential costs and benefits of mobile fare payment are discussed.

When looking at the potential benefits of cellular phone and PDA fare payment, it is important to compare them with contactless smartcards, which serve to provide a general basis for determining the measure of benefits. A typical contactless smartcard stands to benefit the customer and the agency in several ways. These benefits to contactless smartcards are listed below.

When comparing the above benefits to those offered by advanced wireless fare payment, it is clear that wireless fare payment offers many of the same benefits for the customer and business. Benefits are apt to differ mainly in the cost section. Wireless fare payment promises to reduce certain costs just as contactless smartcards offer to do, especially in the form of lower staff costs, lower equipment maintenance costs, and lower ticket selling and survey costs. However, wireless fare payment is likely to include significant additional costs over contactless systems in the form of capital costs for wireless receivers, charges for network access, and costs to the passenger to buy the phone or handheld device. These costs are by no means insignificant, and represent a large potential barrier to this form of fare payment, especially in the near future.

There are several significant barriers that stand to hinder efforts to implement a wireless pare payment system. As mentioned above, to costs will probably be great. Also, it is difficult to predict the success of a type of technology that is so new. Currently, any sort of wireless financial transactions are only done on a very limited scale in some countries. In the next year, however, a few pilot projects may help to get a better grasp of how successful general wireless transactions will be. If these pilot studies are indeed successful, then the issue of fare payment with wireless devices ought to be looked at in greater detail.

Finally, the issue of redundancy is important. If widescale implementation of smartcards happens over the next decade in public transportation, there may be little need to provide additional means of fare payment other that through a transit agency’s issued smartcard. Yet this issue of redundancy also works bidirectionally. If it can be shown that cellular phone and PDA fare payment is just as effective and similar in cost to typical smartcard-based system, transit agencies may favor the wireless fare payment technology. With the rapid rise in the number of cellular phones and handheld computers recently, many people already have or will soon the basic enabling technology for wireless fare payment. This would eliminate the need to purchase a smartcard which would just operate for the purpose of public transit. With smartcards making their presence known in many different sectors, it is likely that many people will possess multiple smartcards in the future. Thus, any opportunity that arises to consolidate smartcards into a device such as a mobile phone or PDA will be embraced.

Several lessons can be learned for wireless applications in public transportation. First, the importance of pretesting is critical. Examples from smartcard-based fare payment systems have shown that pretesting and pilot projects have been useful prior to wide-scale deployment of a particular program. This ought to be directly applicable to mobile payment systems as well. Also, modal integration will likely be another important issue. If transit passengers are able to use their mobile device for other forms of transport payment in autos, and in other cities, the technology holds more promise. This leads to the issue of effective marketing: with such a brand new technology, any attempt to implement it will almost certainly need marketing strategies to allow potential users to be informed and educated about the benefits of mobile fare payment.

Another important lesson is the need for technology integration. Various passenger information technologies are rapidly growing along with fare payment technologies. With the ability to incorporate both passenger information and fare payment in a single wireless device comes enormous potential. What also should be mentioned when discussing the technology of mobile fare payment are security concerns. Though in many ways m-commerce promises to be more secure than e-commerce, attention still must be paid to these concerns. If potential mobile fare payment users do not feel comfortable with the wireless financial transactions, there will likely be little market for these technologies.

Issues of equity are important as well. With such an advanced technology, most initial users are likely to be relatively affluent people who can afford cutting edge technology. However, a significant proportion of transit riders oftentimes do not have the required additional income to spend on such devices. Although mobile phone use is skyrocketing, care should be taken to ensure that certain segments of the population are not left behind in the implementation of an advanced fare payment program.

Finally, the potential for public-private partnerships in such an area as fare payment technologies is great. In fact, it is a necessity. Since nearly all wireless networks are privately built and operated, public transportation agencies would need to work in cooperation with private operators to ensure that an effective fare payment system is created. Competitive tendering of services to private firms is an option that has been used with success in the UK, and its potential for success in the United States is also present. However, how and when these partnerships would need to form is not certain. Similarly, issues of cost would likely need to be resolved before such a joint partnership were agreed upon. Wireless fare payment technologies may be cost significantly more than transit agencies are able to spend. However, as advances in wireless technology continue to occur, and as costs continue to drop for such technologies, the potential is ever greater.

As fare payment technologies for mobile devices continue to be explored further, there are several areas that further research may prove the most beneficial. As mentioned above, a further review of potential pilot projects and various m-commerce applications is a logical starting point. A more detailed analysis of the costs of various technologies is also a possible area of further study. Finally, a study of the potential for various public-private partnerships is an area in which subsequent study would be highly beneficial.

As mobile phone technologies move forward, users are likely to desire to use their phone for additional functions as they become available. There haven been several programs that have happened in Europe in the past couple years. Countries such a Finland, France, Germany, and the United Kingdom have all had their own programs for mobile commerce applications. While most of these programs have been deployed on a limited scale, they are useful in examining, especially for possible implications for mobile fare payment in transportation.

Finland
Perhaps the world’s most developed country in the arena of m-commerce is Finland. For over two years, Finns have been able to buy soft drinks, pay for car washes, buy CD’s, and accomplish other transactions over mobile phones. According to Statistics Finland, 78% of Finnish households had at least one mobile phone in 1999. Due to the amazing level of mobile phone penetration, it follows that several m-commerce projects have been carried out in Finland.

Several smartcard programs are currently going on in Finland, and most of these enable users to ride public transportation with their card. In Helsinki, every bus and train passenger will be able to use the Avant stored value system when riding by 2001 (Adams, 2000). Another project allows users to travel throughout the country with an interurban transit card.

In the realm of mobile commerce, Finland is also emerging as a leader. MeritaNordbanken was the first bank in the world to offer WAP banking in 1999, and is currently involved in another project to allow customers to pay securely over the internet with a WAP-enabled phone. This pilot project is just now beginning, but plans to allow payment using a miniature bank-issued credit card, similar to a SIM card, that runs inside the users mobile phone. The card is designed by Visa, and will be exclusive to the pilot project – users will not be able to control the applications that are loaded onto the chip card (Adams, 2000).

The second phase of the same project will supposedly begin in early 2001, and will begin incorporating a new short range wireless technology called Bluetooth. Bluetooth is a radio frequency based technology, similar to garage door opener technology, though significantly more advanced. Its primary function is that it enables data to be transferred over very short distances (20-30 feet) at high rates of speed (1-2 Mbps). Bluetooth will be used in the Finnish pilot program to allow for the exchange of data between user’s phones and point of sale devices.

Japan
In Japan, the telecommunications company NTT DoCoMo introduced a mobile web service in early 1999. In its first year and a half of operation, over 10 million customers signed up for the service, called I-mode. I-mode is a similar technology to WAP, but is a proprietary service created by NTT DoCoMo. I-mode is currently the dominant form of mobile web access in Japan, and its success has slowed the emergence alternative devices such as PDA’s there.

NTT DoCoMo plans to continue using its I-mode program, but is also expected to begin the use of third-generation mobile devices in less than a year. The impact of third generation devices on current wireless technologies remains to be seen, but the hype surrounding them certainly demonstrates that many are anxiously awaiting the arrival of third generation mobile access.

France
In France, a promising mobile payment system is also currently underway. The system, called “Paiement CB Sur Mobile” was introduced in July 2000 and was expected to have near one million users by the beginning of 2001. Slightly different from an internally based mobile phone payment system, this system incorporates the existing Cartes Baincarres charge cards and a special type of mobile phone that contains a smartcard reader. Customers can shop online, either on their phones or PC’s, or offline in a catalog. When paying for their purchase, the customer simply inserts their card into the card reader on their phone and the payment goes to the bank for approval.

The advantage of this technology is that the customer’s card number never goes out over the air, which heightens security and prevents potential fraud. While this technology is in its infant stages and only two phone manufacturers make phones with smartcard readers, France Telecom nonetheless predicts its rapid increase in use in coming months (Cardtech, Sept. 2000).

Elsewhere in Europe, wireless financial transaction programs are being tested as well. In Denmark, a program similar to the Paiement CB Sur Mobile, was introduced in mid 2000. This program makes use of a SIM card toolkit that is installed on a GSM phone. The SIM card for this program costs about $13 (Falch, 2000)

Table 2: Mobile Phone Commerce Programs
Program	WAP Based	SIM Card Based	Other Platform
Finland	*		*
France			*
Japan			*
Denmark		*

Adams, Jane, “Smartcards meet the future in Finland” Card Technology Website, www.cardtechnology.com (Nov. 29, 2000).

Brown-Humes, Scritto da Christopher, “Nordic countries are pioneering payments by mobile phone over the web” Financial Times, May 2, 2000 www.wmsociety.org/bacheca/messages/132.html (Dec. 1, 2000).

Davis, Donald, "Ten Projects that Shaped the Smart Card World" Card Technology, Dec. 1999. pp. 20-31.

Falch, Morten, “Use your mobile phone as your payment card – the Danish way,” Technical University of Denmark 2000.

Funge Systems Inc “OTI and Funge to Integrate Contactless Smartcard and Mobile Phone Technologies” Nov. 13, 2000.

Jenks, Christopher, "Applications of Intelligent Transportation Systems to Public Transportation in Europe," TCRP Research Results Digest, Oct. 1998.

Levitt, Jason, “Redefining the Wireless Applications Protocol” Information Week Website, July 2000, Info Week

"Octopus Spreads its Tentacles in HK," International Railway Journal, February 2000, pp. 35.

Torode, Roger, "Smartcards: Transport Ticketing for the 21^st Century," Public Transport International, 1998, Vol. 6, pp. 32-33.

Table 3: Worldwide smartcard uses

Table 4: Benefits of Contactless Smartcards

Table 2: Mobile Phone Commerce Programs