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GABRIEL SANCHEZ-MARTINEZ: So let's get started today.
Again, the topic is fare policy, structure, and technology.
So we'll cover policy objectives, the issues
that agencies face, fare structure,
demand response to fare changes and fare technology.
So what are the objectives of fare policy?
There are multiple objectives, and they don't necessarily
support each other.
In fact, they often go against each other.
So the number one objective is to fund operations.
That's the reason there's a user fee for service.
And I say here at least partially
because for the most part, the revenues obtained
by fare collection do not cover the full operational costs,
let alone capital costs.
So here we have some examples of fare recovery ratios
based on the 2014 National Transit Database.
Now, you might remember that we talked
about the National Transit Database
earlier in this course.
And here is a breakdown.
I looked at all heavy rail and I saw
a range of between 0.14 0.78.
So between 14% and 78% of operational expenses
are covered by fare revenue.
The highest one here is in California.
For light rail a little lower and for bus all over the place.
Here we have the averages.
These tend to be higher for rail and lower for bus.
So why is that?
Why would that be the case?
AUDIENCE: On an operational level,
one rail driver is carrying a lot more passengers
than one bus driver.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
Although you can fill up a bus, right?
AUDIENCE: You can fill up a bus [INAUDIBLE] train carrying
500 passengers.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
Yeah.
So to sort of go back to my rebuttal,
there are some buzzers here with fare recovery ratios over one.
So it's possible to have a bus service that returns profit
even.
So why is it that system-wide, bus services
tend to have lower fare recovery ratios?
Because you have a good point, the productivity of rail
can be higher.
Of course, if rail is underutilized,
then you still have that issue.
Any other ideas?
[INAUDIBLE]
AUDIENCE: Buses [INAUDIBLE] who can have the most service
and cover the most low ridership routes?
GABRIEL SANCHEZ-MARTINEZ: Right.
So there's an agency and you system-wide
have to cover your territory.
That will include buses that are not very heavily utilized.
Also, you're providing service late
at night and all those things.
So there are many cases of buses not being very well utilized,
and that brings down the fare recovery ratio.
I did not include here demand responsive.
Demand responsive is usually around 1% to 2%.
So I'm talking about what here in Boston
is called the ride for disabled passengers.
And it can cost around $20 per ride,
and people pay a lot less.
So I think $20 is low.
I think it's higher.
Sorry.
I don't remember the number, but it's closer to $30 or $40,
I think.
So the fare recovery ratio for demand responsive transit
is much lower.
OK.
So other goals.
Keep transit affordable and promote social equity.
So here we have the first conflicts, right?
The first objective would mean that you want to raise fares,
and if you raise fares then you get more fare revenue.
But there's another objective, which
is to keep transit affordable and for social equity,
and that would indicate that you want to keep fares low.
Right?
So also, supporting growth for demand of transit
also keeps fares low.
Make the fare structure easy to communicate.
We'll talk about different fare structures and market
segmentation later in this lecture.
But the point is that when you do market segmentation,
you can get more revenue out of your fare system.
When you want to keep things simple,
then you're probably going to suggest going for a flat fare
structure, where people that have much higher willingness
to pay are still paying low fares.
So that objective of keeping the fare
structure easy to communicate and simple
will reduce fare earnings.
And finally, to reduce fare system costs.
So there are costs to fare collection
and to the fare system as a whole.
Fare collection is one of them.
So obviously, the capital cost of installing the fare boxes
and maintaining the whole AFC system.
There is a cost for people who are maintaining those fare
boxes and vaulting cash out of the fare boxes
and counting the cash and keeping it in a safe place.
And there's customer service.
So customer service involves more than the fare system.
But some aspects of customer service
involve my CharlieCard doesn't work, can I get a new one?
Or I already paid for that ride and you
need to give me a refund.
So these kinds of inquiries or complaints
are coming from the fare system.
OK?
Questions about these objectives?
No.
OK.
So how does fare policy intersect with other areas?
It intersects with many areas, and that makes fare policy
and fare structure a very powerful sort of lever or knob
for a transit agency.
So obviously, finance.
We're talking about funding operational expenses
from the revenues derived from the fare system.
And then there's operations.
So if you have a fare policy that makes people board faster
because, for example, it's proof of payments
so there's no validation required
or you have fare technology that a smart card is
much faster than paying cash, then
that means that you'll have faster boarding, shorter dwell
times, shorter cycle times, higher reliability.
So you might affect operations through fare technology.
Some fare structures require fare inspection.
So proof of payment is one that people board
without interacting with any fare system,
so then an inspector has to come in
and either for all passengers or more likely
for a subset of passengers, a sample of passengers, request
proof of having paid the fare.
And of course, that involves some cost.
There's maintenance of equipment.
If equipment breaks down, the bus
needs to be taken out of service, et cetera.
Public support.
So politicians may promise not raising fares.
That's a popular campaign promise.
And then of course, that puts a lot of pressure
on the agency to do more with less.
And we'll talk more about that when
we discuss transit finance.
There's difficulty gathering support to raise fares.
Usually, we'll improve service first
and then that justifies raising fares.
Right?
I don't want my service to get more expensive
if it's not very good service.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: Right.
And essentially, if you have lower service quality,
then fewer people end up taking it or liking it,
and those people are not going to be
the ones rallying for a transit sort of fare hike.
Then there's also labor's push for higher wages.
So that's another sort of political pressure
on the agency that increases operational costs
and therefore, may require an increase in fares.
But both a labor dispute and a dispute
with the passengers on the fare hike
are the result of unpleasant negotiations or interactions
in public.
Administration, so fare technology and fare policy
and equity analysis.
If you're considering any change to technology or policy
or structure, you have to analyze the economic aspects
of it and you have to prove that you're not
discriminating against any one group, even unintentionally.
So disproportionately affecting a disadvantaged community,
either by race or income, that's called Title VI in the US.
Then there's another big policy issue
is revenue sharing across jurisdictions.
Not so much an issue on the east coast of the US, but certainly
if you go to the West Coast, you have in the San Francisco Bay
Area dozens of operators.
Some of them share the same fare system.
So how much does each operator pay
for routes that serve multiple jurisdictions?
That's one question.
The other question might be, if we are separate operators
and we each have a route so we take care of that,
we still are collecting fares with a joint system.
Do we trust each other?
And often, actually, the barriers to integration
are more about trust and less about technology.
Marketing is another sort of issue
the agency has to deal with.
How much do they market and what is the message?
And customer service, which we already mentioned.
It's interesting to note that fares
are one of the first things that a person
has to sort of understand about a transit system
to be able to take them.
So if you're a tourist and you go to a new city
that you've never been to before you arrive at the airport
and you want to take the bus or the train from the airport,
the first thing you have to do is
buy a ticket, right, and figure out the fare structure
and where are the maps and et cetera.
So this is sort of one of the first issues,
the first impression that a passenger has about the fare
system, about the transit agency, something
related to the fare system.
OK.
What issues do agencies face regarding these topics?
One is fare recovery ratios.
So we looked at ranges.
Typically, fare recovery ratio system-wide across modes
is about 1/3.
It varies a lot, as we saw.
It's rare to make a profit system.
So one of the issues is how much--
well, the first question is, how much of a fare recovery ratio
do we need or do we set a goal to cover operational expenses?
And is it sort of a strong requirement,
as it is in some agencies?
Some agencies have laws that say the fare recovery ratio must
be at least this much.
So if expenses go up, automatic fare hike.
Others, it's more of a guideline or maybe there is no policy.
So that that's one of the key issues.
The second one is how often to raise fares.
I think most agencies are reactive.
So a reactive approach is one where
you avoid the headache of a fare hike
and all the sort of public engagement that goes with it
and you only do that when you have to so
you are in a financial situation where you absolutely
need to raise fare revenues to continue operating.
So that happens less than once every year
and it's a big effort.
Some agencies take the approach of an annual fare
hike with inflation.
So it's kind of predictable, it happens
every year at the same date.
It tends to make each one easier than one
done ad hoc because it's more expectable
and there's less public outrage.
So gathering and maintaining political support,
we talked a little bit about that.
Of course, that is an issue that will play out and sort of it
will affect how other issues are faced and dealt with.
One other issue is do we raise base fares
or do we change the relative cost of passes and discounted
fare products?
So if a base fare is $2, you might
have 50% subsidy for seniors and you
might have some other discounts for students or other groups.
You might also have passes like a weekly pass, which
if you take some number of trips you break even
and after that, you ride free.
So you might actually leave the base fare the same
and change the percentages of subsidy or discounts
or the break even point of a pass.
And that can affect fare revenues,
it can affect ridership, and it can affect people's choice
of fare product.
So you might bump people towards letting go of fare passes
and opting to do pay as you go more often or the other way
around.
And that has implications on how people
think about the transit system, how much it costs for them.
For a pass holder, of course, once they've paid for it,
it's kind of a non-salient expense.
So you don't think about it every time
you're tapping as much as having value deducted from the card
every time.
So those people might ride opportunistically
because they've already paid for it
and they might do shorter trips, discretionary trips
more so than someone who is paying
every fare independently.
And another big issue is investing
in new fare technology.
That's a headache, a big headache.
You can imagine changing the way the old technology, all
the analytics and administration depends on uncertain system.
And bringing in a new system that nobody understands yet
might work or not.
So all the maintenance needs to be figured out.
And you have to communicate with the public about what impact
that has on them, and that could involve changes
in the fare structure, not just the technology.
So sometimes technology enables new fare structures or new fare
policies.
And that can be one of the reasons
for bringing new technology.
Questions on the issues?
[INAUDIBLE]
AUDIENCE: Yeah.
I wonder if the rising fare issue
is less common in privately operated system
than in public operated systems.
GABRIEL SANCHEZ-MARTINEZ: Can you give me an example?
I'm not sure I follow the question.
AUDIENCE: In systems where bus and rail are exceptions
to the private sector.
GABRIEL SANCHEZ-MARTINEZ: Right.
Sometimes the public sector is the one--
so if you look at the case of London,
for example, even though buses are operated
by private companies in some way it's a contract
so the fare policy is still set by TFL,
which is the government.
That's I think usually the case if you
have a push for a unified single brand of the system.
Maybe in other countries--
I'm thinking more of Latin America, Africa--
there are sort of independent people
running their own systems.
And those are usually cash-based so there's
no integration whatsoever.
Maybe you have a different example.
AUDIENCE: But No.
Still [INAUDIBLE] just [INAUDIBLE] the government.
So I wonder if the type of contracts [INAUDIBLE]
engage with the private [INAUDIBLE] concessions.
I mean, there is a difference.
There is a myriad of types of [INAUDIBLE]..
I wonder if that allows you more flexibility to sort of delay
because you're under a contract with a specific [INAUDIBLE]
negotiation [INAUDIBLE].
So I wonder if that give you leverage to delay increasing
fares, as opposed to--
GABRIEL SANCHEZ-MARTINEZ: I'm not sure.
Frankly, I'm not sure.
Sort of the issues related to concessions in that case
depend a lot on the contract structure.
So some concessions derive revenue from the fare.
I think that's not the best way of doing it.
But if that's how the contract is structured,
essentially, you say, I want you to operate.
You keep the fares.
Then of course, any fare question will affect revenues
and it will affect ridership too.
So the private operator will be interested in any kind of fare
policy change if that increases their revenues
and will be disinterested in any fare policy change that
decreases their revenues, or increases the risk of revenue
anyway.
So that is probably a poisonous topic
during the length of a contract and you
might have to then do it between contracts.
Here I'm speculating, but I imagine
this is a case where you pay to run by distance
or you might have some performance standards as well,
but it's not fare so much.
So the government keeps the fares
and then pays the operators the contracted amount.
Then that disconnects the operator's performance
from fare revenue and it allows the government or the planning
agency to change the fare structure, change fare
technology in the middle of a contract.
And so in the former case, I imagine it's quite complicated.
Because usually, the contracts are not awarded on cycle, i.e.,
at a certain moment in time you might have a contract that
expires next month; another one that expires in a year;
another one that expires in five years.
So to implement a system-wide change,
it would be very difficult if the contracts
depend on the fare revenues.
Yeah.
AUDIENCE: So a couple of questions.
One, it seems like one of the biggest choices you make
is whether to have [INAUDIBLE] whether to have
a flat or a zoned fare.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
And we're going to talk about market segmentation.
AUDIENCE: OK.
And then about raising fares, I see that the MTA in New York
battles to raise fares, so I think
flow is really hard for them, whereas when I lived London,
literally every single year on January 1st, the fare changed.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
So that goes back this sort of annually
with inflation and strategy where you do it every year
and it just happens on January 1st.
AUDIENCE: People get a big grumpy, but [INAUDIBLE]
about it.
GABRIEL SANCHEZ-MARTINEZ: Right.
Right.
And there are many other examples
of that kind of approach.
I think it's more effective, frankly.
Expenses go up every year, so why not?
Communicate what the strategy is, make it fair--
no pun intended-- and do it.
AUDIENCE: I read once that King County Transit in Seattle
discounts fares for people living
below the poverty line or some threshold based on that.
[INAUDIBLE] Is that pretty common?
GABRIEL SANCHEZ-MARTINEZ: Yes.
So we'll talk-- in market segmentation,
one of the things you might segment by
is socioeconomic status.
Yeah.
And there's different ways of doing that.
So we can talk more about that when we get there.
AUDIENCE: I have another question.
I also have heard it argued that with the switch
to all electronic tolling that it
increases [INAUDIBLE] obscures how much you actually pay.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
This is a saliency issue.
AUDIENCE: [INAUDIBLE] switch from cash-base fare system to--
GABRIEL SANCHEZ-MARTINEZ: Absolutely.
Yeah.
Especially if you go to passes or a capping scheme,
which we'll discuss.
So yeah.
The more obscure, you make the fare system,
the less of an impact it will have on demand response.
And that is true in other areas.
If you look at it from a macroeconomic perspective,
that's true in business.
AUDIENCE: Wouldn't that mean the more obscure you
make it, the less--
GABRIEL SANCHEZ-MARTINEZ: Well, if people don't understand
pricing, it may be you might get a sort of lower reaction
to changes in pricing.
You make less of a fuss about it.
OK.
Fare structure, so market segmentation.
That's a good segue with these questions.
So one possible way of having a fare structure
is to have a flat fare structure.
That's the simplest one.
It costs some amount to ride, no matter what.
No matter where from, what time of day,
what mode, that's the price.
So again, that's the simplest.
I think most agencies, if you look
at the profile of all agencies, including small ones,
have that fare structure.
Bigger agencies tend to have some market segmentation
because they are bigger and they serve a wider range of people,
they serve a wider geographic area,
and they have some congestion problems.
So how can we differentiate fare,
how can we segment the market?
One is spatially.
So you could have a flat geographic structure
where no matter where you ride from, it costs the same.
You could have zones.
So here in Boston, we have no zones outside of commuter rail.
We have no zones.
When you go to London, there's zones one through nine,
but most of the greater London is in the first three, about.
So it costs more to cross zones than to ride within a zone.
And you can buy passes that are zone 1, zone 1-2, et cetera.
So that's one way of doing it.
If you take that to the extreme and imagine many, many zones,
you could end up with something called distance-based pricing,
where each of the pair has a different fare,
depending on how long that ride was.
So you can do that if you have a tap-in, tap-out system,
you can do that with proof of payment in some cases.
It's more common in Europe.
And regarding zones, a lot of agencies
used to have more zones and are going
for reducing zones and simplifying the system.
It's an interesting, curious trend
because they've been doing this at the same time
that they've been investing in new fare technology that
enables more complex fare structures.
But it's a choice of communicating to the public
and keeping it simple, easier to understand.
AUDIENCE: And do a couple of years' long advertising
campaign to get people to figure out
how to cap for the overground system, which
is part of the TFL.
Because you could essentially go around the entire city just
in zone 2.
But if you don't tap in in the right way
when you transfer trains or something,
it will think you went into the city and out.
It's a lot cheaper to go regularly than it is to go--
GABRIEL SANCHEZ-MARTINEZ: Right.
Because you stay in one zone.
AUDIENCE: It was so confusing.
They had people on the platforms explaining it.
AUDIENCE: Is DC Metro an example of distance-based?
GABRIEL SANCHEZ-MARTINEZ: In some ways, yes.
They have many sort of things that influence price.
So I don't know if you've had the experience of going to CRB
and trying to figure out how much money to put
on your smart trip card because it varies by time of day
or how long you are going to travel.
And you don't necessarily know that ahead of time,
so you end up loading--
it works in their favor.
I just load up $20 or $40 depending on--
I don't really figure out how much my rides will cost and put
in just that amount.
Eventually, maybe I lose my card and they keep the revenue.
OK.
Another-- oh, Eli.
AUDIENCE: So you said that you really need
a tap-in, tap-out system for distance-based,
but for zonal [INAUDIBLE],, how do you run that?
GABRIEL SANCHEZ-MARTINEZ: It could
be proof of payment as well, not just check-in, though.
So in Europe, you have some symptoms,
especially it happens more intercity.
So you buy a ticket between this station and that station
and you have a paper ticket.
And you when you board you validate it so essentially,
it gets canceled with a timestamp.
And if a fare inspector comes, you better have one.
Otherwise, you'll be heavily fined.
So that's one way of doing it.
Any other questions?
OK.
Temporal segmentation, so that's pretty straightforward.
You've got a flat system where there
is no change in fares across time of day
and another one where you have a peak surcharge
or an off-peak discount.
Same thing, two ways of marketing it.
Most agencies prefer to offer a discount on off-peak
than to charge more during the peak,
but it's all psychological.
So why would an agency be interested in doing
this and what are the impacts?
Henry.
AUDIENCE: It would influence people to maybe think more
about taking the trips during off-peak so that there are
alternatives that they--
GABRIEL SANCHEZ-MARTINEZ: OK.
So nudging people who can do off-peak to do off-peak
rather than during the peak.
What else?
Any other ideas?
AUDIENCE: Just encourage more off-peak ridership
in general, like people should probably do this.
GABRIEL SANCHEZ-MARTINEZ: Right.
So more discretionary trips.
So encourage more off-peak ridership.
OK.
And why does it make sense to charge more
during the peak than off-peak, regardless
of how you market it?
AUDIENCE: Some people are [INAUDIBLE] flexible
in their schedules and [INAUDIBLE] capture that.
GABRIEL SANCHEZ-MARTINEZ: Exactly.
So willingness to pay is higher, either
because they are actually willing
or because they are captured on time like they
have to arrive at some time to work so they
don't have many options.
And that means that they're much less flexible
and that their response will be much lower to a price change.
OK.
By service, that's pretty simple too.
You could charge the same for bus and rail
or you could say rail is a better service so it's
going to be more expensive.
The MBTA has this option.
Regular bus versus express bus, another way in which
the MBTA segments the market.
So the idea is if it's a nicer service, you pay more.
By socioeconomic status.
So students might get a discount, seniors,
disabled might get a discount.
We have some rules here where seniors
have to be offered half the base fare,
so that's one example of that.
Some of it can be mandated by the government.
And then there's social programs.
So there's different ways of doing that.
It could be as part of your participation
in some social program, it could also
be a needs-based subsidy where you essentially
prove that you have financial need and based on your need,
you give some amount of subsidy.
So a subsidy could be on or off, you either have the subsidy
or you don't or it could be depending on your need,
you have more subsidy or less subsidy.
And usually, it's the simpler one.
I don't actually know of any example that
is done based on your specific case,
but you could think of doing it that way.
Because if somebody is very, very poor then
they might need more subsidy than somebody who
is just below the poverty line.
AUDIENCE: [INAUDIBLE] is that because those groups tend
to have less ability to pay or what's the logic?
GABRIEL SANCHEZ-MARTINEZ: That is usually the logic.
So yeah.
Again, it's sort of social equity goal.
So seniors and students often can't drive, et cetera.
So it's the goal of the transit agency or the transit provider
to increase mobility for all groups of people,
the way in which that goal is satisfied.
Henry.
AUDIENCE: How about programs where
you can take out your income pre-tax and [INAUDIBLE]??
Is that like a social program?
GABRIEL SANCHEZ-MARTINEZ: No.
I do have that in another lecture, yeah.
Because that is done for people--
often, they are employee who have a decent salary.
So that's an incentive.
And that incentive exists for a car as well.
So that's a different strategy.
Another way of segmenting is by willingness to prepay.
So in other words, are you willing to buy a pass?
So if you can commit to a whole month,
then you get some discount.
And this depends heavily on what the break even point is.
Usually, passes-- it used to be the case that passes
had heavy discounts.
So even without having a commute two times a week for five days,
you would still get a discount.
Now it tends to require sometimes between two
and three trips daily to get that break even point.
Some people still decide to go with that because it's more
convenient, it's less salient.
So it's another way of discriminating or segmenting
the market.
Any questions on market segmentation?
AUDIENCE: [INAUDIBLE] so speaking
of [INAUDIBLE],, the subsidies given by government?
GABRIEL SANCHEZ-MARTINEZ: It depends.
So it could be that the agency has
a mandate they have to do this.
That is often the model.
From an agency's perspective it would
be much preferable to have the subsidy come from someone else.
Because then that would allow the agency
to focus on operating, It would set fares
to what it needs to cover operational expenses.
And then if it's a social program, well,
why doesn't that social program provide the subsidy?
If it's disabled, maybe there's some other government entity
that can provide that subsidy.
For students, why not the schools
or the Department of Education.
So that's an interesting sort of policy debate
and we could talk about it for a long time
because some people are very much against it
and some people think that's a good idea.
Yeah.
AUDIENCE: Also another thing about the various groups that
are entitled to subsidies is that you
have to have some mechanism within your technology
that verifies that a person is [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: To prevent fraud.
Yeah.
So smart cards are helpful with that
because you can embed the transit chip into a student
card, for example.
And that's what we have here at MIT.
OK.
Fare elasticities.
So they can range from -1 to 0.
We know that demand of transit is inelastic.
So it means that almost always, virtually in every case,
if you raise fares, you increase your revenue
and your ridership decreases not by too much,
not by so much that your fare revenues go down.
So here are some examples of typical elasticities.
They usually are closer to -0.3 or -0.4.
For rail, it's a little less, so -0.2, -0.15.
For off-peak, it tends to be twice as much
because more trips are discretionary.
For work trips, it tends to be much more inelastic,
as we discussed, so even half of their base one.
And there's something interesting
that is maybe not as important anymore,
but I wanted to add it here.
There is a higher demand for free transit
than there is for very, very cheap transit.
Even if you have to pay, say a cent,
to really get to the extreme, the simplicity of not having
to deal with paying fares, not having to interact with a fare
system, and from the marketing point of view, it's free--
you can just take it whenever, you don't
have to be ready to take it--
then that sort of drives demand up.
So that's an interesting finding.
A lot of agencies have moved away from that
because these are usually smaller agencies.
But of course, operational costs increase and at some point,
you need to cover them somehow.
So these inelastic values mean that raising fares
is an effective way of increasing revenues.
Not so much to increase the demand,
although sometimes some aspects of fare policy
are changed to increase the amount.
You know you're going to get a small response to that.
From a microeconomics perspective,
if you think about market segmentation and running
transit like a business, then you
would want to charge more for longer trips;
trips in more convenient, reliable, comfortable,
and frequent modes; peak period trips; trips where
other modes are inconvenient or costly, therefore this
is the best option and why not charge more for it;
and trips subsidized by third parties
because then you could capture some of the increased
fare from an outside source.
All right.
So of course, not everybody would
agree that this is what agencies should do.
But if you are thinking of running
an agency as a business, this is exactly what you want.
If you have more willingness to pay for whatever reason,
your fare is higher.
And that means that fare revenues go up
and your fare recovery ratio goes up.
And that means you can operate more service
or you can operate more reliably or you can
get nicer vehicles, et cetera.
All right.
So transfer pricing and policy.
Another issue, some agencies don't
have any sort of integration between rides
so every time you board a vehicle, you pay a full fare
and there's no free transfer.
Some agencies have a reduced price transfer
or a free transfer.
And free transfers can be done in different ways.
One of the most common ways is to have
a time-based free transfer.
So you tap and you get, say, an hour
or two hours of free transit starting from that point.
So if you transfer, you'll presumably
be in this two-hour window and the next time you tap,
it'll be a free transfer.
Here in the MBTA, the price is higher for rail and bus.
So if you transfer from bus to rail, you pay the difference.
If you transfer from rail to bus, both are free.
Interestingly, with this time-based rule,
you can often do something very quickly and return
and these are actually two different trips
and you would still get a free return trip
and it's not a transfer.
So with more complex fare rules, you
could say you should get free transfers within this window,
but not if you are on the same bus route
or if you are tapping into the same station or things
like this.
You could think of the rules used
for transfer insurance when we discussed all the [INAUDIBLE]..
These are not fare transfers.
Those were sort of a logical trip transfers
and you could apply those rules.
You could put them into a fare engine
and not give free transfers when it's not a transfer.
OK.
Pay-as-you-go, passes, and capping.
OK.
One question before we--
Daniel.
Yeah.
AUDIENCE: Is there-- how do agencies
determine if it's unlimited free transfers within the same trip
or [INAUDIBLE]?
Because [INAUDIBLE] bus, rail, bus [INAUDIBLE]
have to [INAUDIBLE].
GABRIEL SANCHEZ-MARTINEZ: You usually
don't have to because they set the window wide enough
so that you can get your whole three-four trip done
in that two-hour window.
AUDIENCE: [INAUDIBLE] trips and I've been charged [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: Oh.
In theory, I think you could go to customer service and say,
this was a transfer.
Your policy is free transfers.
You need to refund me.
Yeah.
I don't know the details of it, but I
imagine that's the case, that you could argue
that you deserve a refund.
AUDIENCE: [INAUDIBLE] paid fare policy [INAUDIBLE]
reach your [INAUDIBLE].
GABRIEL SANCHEZ-MARTINEZ: OK.
I haven't, clearly.
It would probably be very interesting, actually.
Any other questions on transfers?
Transfers are more of an issue when there are
multiple operators in a region.
And we'll talk a little bit more about that.
If it's one operator, that's sort of less controversial.
OK.
So pay-as-you-go passes and capping.
So pay-as-you-go is the simplest way of paying for trips.
You can do that with cash or with tickets or smart cards
that have a balance.
So you load up some value onto the card
and every time you interact with a fare box or fare gate,
some amount of that balance is deducted from the card.
That's pretty clear, hopefully.
Then there's passes.
So the idea of a pass is that you sort of prepay
for three days, for a week, sometimes for a day,
sometimes for a month.
And it's a fixed price so you ride with zero marginal costs
after paying that fixed price.
If you ride frequently enough, then you break even
and anything beyond that is a free ride.
So it's interesting to note that because passes are convenient,
some fare revenue is derived from past sales
for people that don't break even.
That could happen for several reasons.
One of them might be it's more convenient
and I'm not going to figure out every month if I'm
going to be having the pass or not the pass.
It could also be that some people receive a subsidy
from somewhere and what they spend
on the pass is lower than the pass value.
And so for them, the real break even point is lower
and you may not necessarily be considering that when
you do this break even point calculation.
So in some cases, going back to transfers, agencies
that don't have free transfers, you
can get them indirectly through a pass.
Because they might say, well, you
break even at 10 rides per week so that's
your five weekdays times two of going and returning.
And if you have no free transfers policy
but your trip requires one transfer,
then you're going to very quickly reach that limit
and you're going to ride free after that.
So in practice, that would be a free transfer policy,
although not directly.
So passes increase convenience, we know that.
The reduce saliency so you're not
thinking about how much money you're paying every time
because it's more convenient.
They can be subsidized by employers, by universities,
by governments.
So here we talk about the pre-tax benefit
that Henry brought up.
And then there are social programs,
like access to jobs programs, that give
passes subsidized or sometimes even free
for people that are economically disadvantaged.
Questions on passes?
I think we're all familiar with passes.
OK.
So capping is less common, it's a newer thing.
It's more common in Europe.
London has it, Germany has it in many places, the Netherlands.
So the idea is that when you have a complex fare
structure where the prices are difficult to figure out,
then the agency says, don't worry about calculating which
fare products you need to buy; we'll do the math
and give you the best price.
So that's called best price guarantee.
And the idea is that instead of committing
to getting a pass or not a pass, you
pay as you go but when you reach a certain daily limit,
no more is charged during that day.
So you can keep riding.
And that doesn't stop there.
So the card keeps counting the trips
in one week, the trips in one month.
And so you might have multiple caps
and you might reach different caps on one session
sort of with one card.
So essentially, you end up getting
the equivalent of a pass if it was worth it and not otherwise.
Obviously, that means agencies lose some revenue
from people who didn't make the right decision,
but it's one way of having a complex fare structure that
heavily segments the market and therefore does
obtain more fare revenues.
And it allows for simple communication with people
by saying, don't worry about it; we know it's complicated,
but we'll figure it out for you.
That's one argument.
In London, one of the reasons capping was introduced
was with the movement to contactless bank cards.
So essentially, you can pay with your Visa or MasterCard.
You can have it on your phone, Apple Pay or Android Pay,
you tap, it works.
So obviously, a normal Visa might not
have the logic inside the card's computer
to hold a pass or anything like that
so the card becomes a token.
One way of dealing with that is to say, it's capped.
We'll keep track of your usage for the month
and when you reach the monthly cap,
we'll stop charging you for it.
So it simplifies the move to or towards contactless bank card
usage.
And we'll talk more about that.
Yeah.
AUDIENCE: So since London introduced this,
have they seen a drop in the number of pass purchases?
GABRIEL SANCHEZ-MARTINEZ: Yes.
Well, they've seen an increase in--
the penetration for contactless bank card use
has been increasing steadily.
And if you go to London, my last experience there
was on the train ride between the airport
and the center of London, I heard several people talking
about how convenient it was.
So people are excited about this.
And it's great for a city like London
that has a lot of people that are
occasional users, a lot of business travelers being
able to not have to think about it
and just pay with a credit card.
It really helps.
And it has several other benefits.
I'll discuss them more in detail when we get to smart cards.
AUDIENCE: If you say that it's capped
and you said that there's a trend away from passes,
people are not buying passes.
But isn't that essentially saying that actually,
no; people are buying more passes than ever.
GABRIEL SANCHEZ-MARTINEZ: Well, it's capping so it's not--
AUDIENCE: It's capping, but it comes--
GABRIEL SANCHEZ-MARTINEZ: It's equivalent to a pass.
The math works out so that it a pass,
but you're not selling a monthly pass.
Yeah.
It's not a pass.
You're paying each ride.
AUDIENCE: --acts like a [INAUDIBLE]..
It induces [INAUDIBLE].
AUDIENCE: Yeah.
But I think if you go to London every couple of months
and you can just show up in London
and you don't have to fill up an Oyster card or anything.
You can tap your card and use it like you normally would.
If you ride too much in a day, they cap it as well,
which is something they don't do on a monthly pass.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
OK.
We'll discuss more on the contactless bank cards.
This is a very interesting trend that we're seeing.
So fare policy demand analysis, we talked a little bit
about this on ridership forecasting.
Just a little recap, the traditional four-step modeling
process is not usually appropriate.
And that's because A, it has insufficient spatiotemporal
resolution and B, the planning horizon for a fare hike
is kind of short- to medium-term so you're not
thinking about land use changes that will generate new trips.
So therefore, total amount is, we can assume, fixed.
And what you want to play with is the modal split
and the assignment to specific trips.
The other thing is that these four-step models usually
don't have all the details of all the fare products in them.
And for an agency, it's important to know
what people will do about getting a pass
or paying as they go.
So usually, fare elasticity analysis is simple;
in reality, a passenger is considering multiple things
at the same time.
So which mode are they going to take,
are they going to drive their car or are they
going to take transit, are they going to take bus or rail?
Fare products, are they going to go for the pass
or are they going to pay as they go?
And maybe there are multiple passes, which one?
And then costs, not just in absolute terms.
So usually, elasticity only looks
at the percentage increase in fares for this mode.
But what if car costs have gone up by more than that.
So really, it's relative to your alternatives
and each person might have a different choice.
For some people, transit might be the only mode of choice
[INAUDIBLE] the only mode in the choice set
because they don't own a car.
For others, there may be multiple options.
So the other aspect of it is that exogenous factors
influence demand response and they're not usually controlled
for.
So fuel prices, employment, residential development,
tax policy, sociodemographics, new modes--
the introduction of TNCs like Uber and Lyft
and other companies have potentially affected ridership,
we think they have.
And most of these elasticity models
don't really sort of control for that
to get the real fare elasticity, and that
would be what you would want to do, an accurate model.
OK.
Communication of fare policy.
So obviously, to the public it needs to be communicated.
You can do that on your website, you
can have near fare vending machines there's usually you
know an explanation of the prices,
you have a customer service booths.
If there's going to be a fare change, again
you post things on the website; there's flyers and posters
everywhere; public hearings, of course,
to sort of hear complaints and defend the hike.
And I wanted to add one sort of third emerging but very
important aspect that we haven't figured out,
and it's via APIs or standard feeds for trip planners.
So if you have an app or if you use Google Maps to get transit
directions and you want it to calculate what your fare will
be, unless the agency has a simple fare structure,
that can't be done.
Even for agencies that have a simple fare structure,
most of them don't provide the two files
in GTFS that allow that calculation to happen.
And for agencies like London that have a capping scheme,
the GTFS specification does not provide the means
by which to input the fare rules that would accurately
calculate the person's fare.
Because you would need to keep track
of how much they've taken service over a week,
over a day, et cetera.
So that we haven't figured out.
Third party apps like the transit app
would love to be able to calculate fares
accurately and display them.
Because they can do that for Uber and they
can do that for other modes, so why not for transit as well?
And although they would prefer to do that in-house,
one alternative to that is to define
some sort of standard API where it's
up to the agency to calculate what that would be.
But you make an API call and you say,
this is the hypothetical trip that I'm planning.
Give me how much [INAUDIBLE] and the agency would respond.
But for performance reasons I think
the transit app would prefer to be
able to do that with their servers
so that there's a quick response.
Partnerships, another sort of emerging trend.
So employer partnerships is one example.
I'll give you the example of MIT, actually.
MIT has something called AccessMyCommute.
Our lab was actually involved in that.
So every MIT student or employee badge
has a Charlie chip embedded inside.
You can look at the back and it says, Charlie inside.
And to employees, it's marketed as an unlimited use pass.
So I can use my MIT ID and ride the MBTA.
MIT gets billed on a pay-as-you-go basis.
So the reason that was the agreement
is that a lot of people don't use transit enough
to justify the value of a pass.
So there was no way that MIT would
agree to pay a pass for every employee.
And it's in the interest of MIT to foment,
to encourage ridership, so to decrease saliency,
in this case to the extreme by making it free.
So one way of doing that is to say, market it as a free pass.
There is a mix of people that had passes and people that
ride less often.
AUDIENCE: Could MIT reach a point
where it might actually want everyone to the pass
without the [INAUDIBLE] employees knowing it
[INAUDIBLE]?
GABRIEL SANCHEZ-MARTINEZ: I don't
think so because many, many employees-- yeah,
it's not close.
And some people ride a lot more so MIT
in some ways for some employees is paying more
because they're paying by ride.
But many people that have a subsidized pass
because their break even point is so much lower
don't really break even.
And so it works out to--
AUDIENCE: The next project that project might do
is to find a way to predict based
on the employee [INAUDIBLE] this information
and they make a prediction for what he's going to do.
And you might save MIT a fair amount of money.
GABRIEL SANCHEZ-MARTINEZ: Yeah.
Well, one of the reasons MIT decided
to do this is because parking is very expensive,
real state is very expensive-- very expensive.
And that's, of course, not true everywhere.
It's not true in most places.
Most places have free parking, plenty of land.
But in a place that has high density, building new parking
is very expensive and you could use that real state
for something else.
In fact, MIT has taken a parking down near Sloan
and is making a new building there.
So it costs less to provide transit to people
and to encourage people to take transit
than to build new parking and maintain parking.
Here's another example.
So the Chicago Transit Authority has
partnerships with other transportation providers.
And they do that by providing--
there are some passes and some fare products that
allow riding in PACE, which is the original bus provider;
Metra, which is the commuter rail provider;
and Divvy, which is the bike share.
So you can buy things that--
there are some partnerships that allow some integration here.
And there is a trend towards mobility as a service.
So the idea of mobility as a service
is that you make a monthly payment for a bundle
of transportation options.
Here's an example.
You could have unlimited transit pass five bike rides and five
TNC rides.
So you provide this bundle.
The person is purchasing my transportation from home
to work and back on a combination of both.
So if it's today it's inconvenient to take transit,
that day I will use the bike share or the TNC.
The word is out on whether this will work or not.
Many agencies are interested; most of them
don't want to talk about it.
And we'll see what happens as time goes by.
AUDIENCE: Is the reason that MIT is
hesitant to extend the transit benefit to grad students
because grad students tend not to be parkers so we
don't have that bargaining?
GABRIEL SANCHEZ-MARTINEZ: That is
sort of a reason for why they shouldn't or wouldn't, but I'm
not sure that it is the actual reason.
I think this was always conceived as an employee
benefits program.
AUDIENCE: Aren't we like employees?
GABRIEL SANCHEZ-MARTINEZ: Not quite.
So yeah.
So I don't really know the actual reason.
Sometimes decisions are made for--
you justify them in all sorts of ways and then someone decides.
So many other factors play in.
OK.
Fare control.
Tap in, you know what that is.
You interact with a fare box or fare gate
only when you're entering the system or vehicle.
Tap in and tap out, you do that when you enter and exit.
Usually, tap in and tap out is for systems that have zones
and you tap out so that we know if you've
traveled multiple zones or not and therefore, we
know how much to charge you because of the segmentation
by geography.
It also happens when there are multiple agencies sharing
the revenue.
So intercity bus in some cities, if a person takes a bus route
within a city, then that revenue would go to that city.
If the person travels across cities,
then the revenue would be shared across cities.
So that's one way you might want to do this.
I know that it does exist in some places for bus
where you have to tap in and tap out,
although it's much less common for bus than for rail.
Henry.
AUDIENCE: If the tap system introduces a day pass,
for example, where [INAUDIBLE] go to multiple--
GABRIEL SANCHEZ-MARTINEZ: Yeah.
Yeah.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: Yeah.
AUDIENCE: Then would they just [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: I don't know how they do it.
Funding formulas are a huge debate.
And as an engineer, I would propose to look at their OD
and figure out the most fair way of allocating that revenue.
But how would they actually do it is probably simpler.
Another thing about tap in and tap out
is that you may require internal vending machines.
It may increase your capital costs.
Why is that?
Because you have multiple costs.
The price of your ride depends on how far you ride
and if you cross zones or not.
So you might have just enough balance
to enter, not enough to exit if you cross multiple zones.
So you might have to top up the card
before being allowed to exit.
That means you need a fare vending
machine that a person can use to top up
if they don't have a pass.
It means that you might need a station attendant
to deal with somebody.
If the fare vending machine is not working
or my bank card is not working and is being rejected,
I need to get out of the station.
I'm trapped.
So what do I do?
So it can increase costs in that way.
You had a comment?
OK.
No.
Right.
So that's one potential issue.
Something that some agencies do is allowing a negative balance.
So when we are softening the blows
to allow when you tap out to go below zero.
Next time you fill up the card, you top up, if you put in $20
and you had a $1 deficit, your balance is now $19.
You can't do that if cards are [INAUDIBLE] because people
will then toss the card and get a new one.
So you make people buy the.
The cards are maybe $10 and a $5 balance or something.
So there's a disincentive to tossing the card
and getting a new one.
And by the way, smart cards cost money.
They're not that cheap.
Some agencies have paid $10 per card for their card.
Proof of payments, we sort of discussed that.
You buy a ticket.
It might be OD, it might be flat fare.
It doesn't matter, you buy the ticket that you need.
And then when you board, there's usually some validator
that prints a time stamp.
It can be electronic as well.
And what it requires is fare inspection.
So at random, a fare inspector will board the vehicle
and have a handheld device requiring people to confirm.
If it's an electronic system, then they'll tap on here
and I want to make sure that you've actually validated.
If it's paper, then they would look at the paper
and make sure that you've canceled it or validated
that paper ticket.
And otherwise, big fine.
So the discouragement to fare evasion is through fining
and through policing.
But the research shows that there are still
higher fare evasion rates on systems
that are proof of payment.
People opportunistically board and they don't pay anything.
OK.
Fare technology.
So we've talked about structure and policy,
let's talk about technology.
So this is how an AFC system is usually set up.
You have a fare engine.
It's a server that has all the fare rules in it
so it can calculate fares based on a sequence of taps.
And it's connected to different things.
So a fare vending machine, that's
where you purchase your card or your ticket.
So these are usually fiberoptic connections
or hardline connections and so they're fast.
It's a real-time validation.
As soon as you buy a card and add value
to it from a fare vending machine,
that balance is usually updated.
If the fare engine has a balance in it,
it will be updated in the fare engine.
That's not always the case.
There's many kinds of systems.
So customer service booths are also connected,
fare gates are usually connected as well.
So when you tap into a fare gate,
there's a quick communication with the fare engine saying,
is this card valid, yes or no?
Is there a balance?
If so, deduct balance.
This is how much balance needs to be deducted.
And the fare gate opens.
Or maybe the fare engine says, no, the card's not good.
Sound the alarm, don't open.
There are other ways of doing it.
So the card itself might hold the balance and the fare gate
might have the logic to decide whether to open or not.
But there's a whole range of ways in which this
can be configured.
Fare boxes and validators are usually
on vehicles, although there can be handheld validators.
Again, a validator is more often used for proof of payment.
A fare box is used when it's pay-as-you-go or pass,
so that's what we have here in Boston.
There's two ways of doing this.
It used to be the case that they were not
communicating in real time with a fare engine.
So the card and the fare box have a little chat
and decide how much value to deduct.
Later, the bus reaches the garage or it's being cleaned
and at the garage there's a garage server that
wirelessly probes the fare box and extracts
all the data from it.
And only then will the fare engine
receive the information about what transactions have
been done in that fare box.
So you might have, again, a real time validation.
It can be a little slow over the air.
So what happens, and this is being done London, for example,
with contactless bank cards, what
happens is that maybe the first time the card is seen,
there is this dialogue and validation.
After the card is marked as trusted,
then it can just validate immediately
and the actual deduction can wait a little bit
and be sent in batches to the fare engine.
There's a cash vault. That's where
if your system accepts cash when the bus or fare box reaches
the garage, that cash vault is taken out
and the cash needs to be counted and moved out of the fare box
and to a safe place.
Smart cards themselves are computers.
They are small computers with a battery and a clock
and some amount of processing power.
So they have some memory, so they
can hold some history about your last trips.
They can hold how much balance there is in some cases.
They are able to encrypt and decrypt communication
so that it's harder to break the security
and say add balance your card.
And I want to add although this is not necessarily
part of the fare system, data [INAUDIBLE]..
Increasingly, we are doing a lot of analytics.
So usually, there's some connection
between the live production system and a data warehouse
where on a daily or a weekly basis,
there's an extract of data into a data warehouse.
And that allows analysts to run heavy queries on a server that
is dedicated to analysis and not on the live system [INAUDIBLE]
whether or not to open a fare, if that makes sense.
OK.
Fare media.
Any questions about fare technology and the framework
of how this is set up?
There are lots of variants and I didn't
get into the details of how any one system works.
OK.
So fare media.
Cash, we all know what that is; tokens.
So I don't need to go into how cash
is minted or anything, right?
So tokens are little coins that you buy with money
and it's like a ticket in some ways.
It has some value and sometimes it's
possible to be able to have to pay two tokens for a ride,
although usually it's just one.
They're being phased out because they
can print paper tickets with magnetic stripes
and there's more data to it.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: Yeah.
So they still exist.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: Yeah.
They still exist.
Yeah.
This is a Boston token, by the way, this one right here.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: No.
I'm pretty sure this is an old Boston token.
Yeah.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: Yeah.
Yeah.
Maybe I'm wrong, but I think that's the case.
OK.
Tickets.
So tickets are they're printed on paper
and they have a magnetic stripe.
They don't have a computer in them.
The magnetic stripe holds information
that can be encrypted.
So it can be, but it's not always encrypted.
It's a little easier for there to be fraud with tickets.
So if there are questions on tickets,
I'll talk more about them.
Smart cards I've talked about.
Mobile ticketing is another option.
So that's a recent development.
You have an app, you pay for a ticket for your ride
on the app.
And it's usually kind of a proof of payment system
where a fare inspector comes along and scans a QR code
on the app, proving that you've purchased a valid fare
for that OD pair, for example.
This is being used here in commuter rail in Boston.
And then the sort of newest form is contactless bank cards.
So that's a wireless Visa, MasterCard, credit charge card,
debit card and you tap it on the--
there you go.
You can pass it if you want.
Can I see it?
So you tap it just like you would
a Charlie card or an Oyster card in London
and there's the dialogue between the fare and the card.
Strong encryption.
As I said, the full validation process
doesn't always happen, especially in bus,
because you can trust the card.
There is a separate antenna.
Of course, the frequencies and the protocols are different.
But there are good standards for this
and London has moved to this.
CTA's system is based on this technology,
even though they opted to only use token cards.
So it's the same technology, but it's
branded as their own thing.
And I don't know if they can--
now it does, right?
But at the beginning, it wasn't.
AUDIENCE: I met someone who had a problem--
GABRIEL SANCHEZ-MARTINEZ: Yeah.
AUDIENCE: [INAUDIBLE]
GABRIEL SANCHEZ-MARTINEZ: Yeah.
So with this, as you have more and more cards
on your wallet that are contactless,
you should get like a copper-lined wallet
or something, to like copper sleeves.
They exist to sort of prevent two reads from the same card.
AUDIENCE: So if I have a contactless bank card,
can I just walk up to one of those systems and tap in?
GABRIEL SANCHEZ-MARTINEZ: Yeah.
AUDIENCE: [INAUDIBLE] absolutely nothing?
GABRIEL SANCHEZ-MARTINEZ: Absolutely nothing.
You just get on the bus.
Yeah.
It used to be the case in Chicago
that it was kind of their own thing
and you were given a card.
It was the same thing as a credit card,
but just as a token with no balance or account on it.
And now they've enabled this.
So that's the new way.
AUDIENCE: But there are other issues
about that because there are issues of what
if the card is from a different country and things like that?
GABRIEL SANCHEZ-MARTINEZ: Again, you do validation.
There are policies.
That's what these card companies do.
They're good at it.
There is insurance for fraud.
So they-- yeah.
Yeah.
AUDIENCE: It's a big push from Visa and MasterCard
to get [INAUDIBLE] contact list because [INAUDIBLE] money
[INAUDIBLE].
So every way they can make it easier to spend money
is better for them.
GABRIEL SANCHEZ-MARTINEZ: Eli, you have a comment?
AUDIENCE: And in Chicago, it doesn't process transfers
or passes.
They're just charging you a la carte, one trip.
GABRIEL SANCHEZ-MARTINEZ: So there's
they don't have a capping scheme.
AUDIENCE: Right.
And it doesn't [INAUDIBLE].
GABRIEL SANCHEZ-MARTINEZ: So if you want a pass,
that's not an option for you is what you're saying.
AUDIENCE: You need to actually [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: OK.
Yeah.
So that's an interesting comment which no one heard.
I'm sure the comments on the back are also interesting.
AUDIENCE: They're just asking me about [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: I'm generally interested.
Can you share with the class?
AUDIENCE: They were just asking whether you actually
have to [INAUDIBLE].
GABRIEL SANCHEZ-MARTINEZ: Oh.
OK.
AUDIENCE: You do have to take it [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: As opposed to EMV, yeah.
AUDIENCE: But [INAUDIBLE] Chicago
have it because I thought it [INAUDIBLE]
penetration [INAUDIBLE].
GABRIEL SANCHEZ-MARTINEZ: But I think they will increase.
And that I think could be driven by agencies in big cities,
actually.
That's one example of that.
The US has been a little late in adopting credit card
technology in general.
All right.
Smart cards.
So I've already talked a little bit about them.
They enable more complex fare structures,
they allow faster boarding and higher gatebank throughput
because the validations are much faster than a ticket.
A magnetic stripe ticket needs to be fed in
and read multiple times sometimes
and it takes more time to do that.
Certainly, cash is slower.
So account registration is one of the benefits of smart cards.
You don't have to do this, but you often can.
So you open an account and that gives you balance protection.
If your card is lost, you can log into your account
and remove that card.
The balance could be retained on the account
so you can get a new card associated with that account
and you have your balance.
Autoload is another convenience.
You might have a rule that says, if my balance drops below $5,
charge $20.
So if it's top up or pay-as-you-go,
then this one feature.
Of course, it's much better for us sort of researchers and data
nerds, better data for analysis and planning,
longitudinal studies.
You can track a token longitudinally
and understand more about behavior.
It's embeddable in employee and student budgets, as we've seen.
They are more expensive than tickets.
Now there are some smart tickets so you can print a card
with a chip circuit inside.
Those are a little cheaper.
One issue with smart cards is that a lot of these systems
are proprietary.
And there are some standards, but there are several
standards-- too many of them--
and they don't all work everywhere
and so you can't really use a card
from one system on another system.
That's usually not the case.
There are some exceptions to that.
There is a move towards open source hardware specifications.
New York is a good example of that.
They recently did some procurements
where they asked all the parts to be--
it was for an AVL system in this case--
to be open source hardware and communications technology.
That means they're not locked into that vendor.
So if they need to replace one aspect of that system,
they can hire someone else that also
complies with that standard and that part can be replaced.
That lowers costs, increases competition,
and it means again that they're not locked into that vendor.
Lee.
AUDIENCE: [INAUDIBLE] security at all or [INAUDIBLE]..
GABRIEL SANCHEZ-MARTINEZ: Usually, the systems
have strong standard encryption.
Part of the standard is what encryption is used
and what encryption algorithms are used, hashing, et cetera.
Yeah.
So the Charlie card has pretty weak encryption,
40 bits I think, and the same key on every card.
So a long time ago, someone cracked the key by brute force
and that's the same key on every Charlie card.
So once that key is public, anyone with the equipment
could load a fake balance to the card
because the cards are the ones having the balance in the AFC
system here and not the fare engine.
That means that effectively, you can lie to the fare system
and say that you have more money than you have.
Much harder to do with any modern system,
certainly contact with a bank card
which has a very strong encryption and unique keys
per card.
AUDIENCE: Did MIT students get caught doing that?
GABRIEL SANCHEZ-MARTINEZ: The MIT students
were the first to do this.
They were caught and there was some issue.
Which I think it ended up being just a slap on the wrist,
but there was a lot of issue with it.
Because they wanted to publish a paper
or publish something and then that was an issue.
OK.
So integration across agencies of a region is possible.
That's one of the reasons for moving towards smart cards,
especially in regions that have many providers.
But it's challenging, and usually the challenges
are less technical and more about trust and business
and who gets to decide what color the card is
or exactly what the fare policy will be.
This is another interesting thing.
In some countries, and I'm thinking specifically
of Japan and China, there are examples of retail stores
that have partnered with a transit agency
and you can use the card at retail locations.
Hong Kong is an example of that.
There's more than 100 retail locations that accept Octopus.
And in Japan, I know that there are entire cities where
there's like a whole mall and this is what most people use
as a charge card.
So that's interesting.
If you don't have very tough privacy laws,
as you do in Europe and the US--
I'm not sure what they are in Japan,
but there was some research where
they were combining all the data from shopping and transit
to get really interesting behavioral analytics.
And you can do interesting things
like offer discounts at stores if you do something in transit.
So there's a lot of very interesting [INAUDIBLE]..
AUDIENCE: Our company did the same thing
and once [INAUDIBLE].
So after that, we are very careful about dealing
with [INAUDIBLE].
GABRIEL SANCHEZ-MARTINEZ: Yeah.
Yeah.
Thanks for sharing.
So contactless bank cards.
We started talking about this, we've
mentioned that multiple times.
Here's the logic for it.
A transit agency would prefer not
having to deal with the complexities and costs of fare
collection.
Essentially, if you have a fare system,
it's like having a small bank.
It doesn't give out loans, it doesn't do other things
that banks do, but you are dealing
with money and the cards and customer service related
to cards and all those things.
Banks do that, and they do it very well.
So why not outsource that part of the business to banks?
There are multiple banks so they can get competition.
So credit card companies specialize in payment;
contactless bank cards are very secure,
much more so than say the Charlie card;
you can use cards like this in several ways.
So you could directly use them for payment
as you would at a retail location
or you can use the token that identifies that card, tying it
to an account.
And then your fare engine can calculate what the fare will be
and capping and all that.
And then on a regular basis, there
would be a charge to your credit card or account
for whatever total was calculated.
So that also enables Apple Pay and Android Pay.
If you can put your credit card on your phone,
then you can use your phone to get into the system.
In London, people love that.
It reduces fare collection costs.
So why?
Not necessarily obvious.
So it simplifies customer communication.
You don't have to issue new cards to people,
you don't have to explain how you pay because people
know how to use cards.
It relies on open standards so there's
more competition on the market.
There's several banks, for example,
and you could have banks compete for who
will give you a better deal in terms of fees on these cards.
It outsources some aspects of customer service to banks.
So if my card stopped working, who's
going to get the phone call, the transit agency or the bank?
And it eliminates costs of sort of creating and distributing
smart cards.
So there's several ways in which this is reducing costs.
London has successfully been able to reduce
the number of station attendants and especially of booths
where they sell Oyster cards and have customer service related
to Oyster cards.
They've been able to close those and save money.
And then there's an equity issue,
and this is what is always sort of brought up
when you talk about contactless bank cards, which
is what about the unbanked?
The poorest people are the ones who don't have a bank account.
So what can you do about that?
Does that make this not work?
So there are multiple ways of addressing that.
An agency can issue cards that have preloaded balance.
So that person could interact with the agency, not the bank.
They don't necessarily need a bank account.
You can have banks offer free accounts.
So you can try to encourage people
to open accounts that have no fee, no minimum balance.
So some [INAUDIBLE] special accounts created for that.
And one other issue is that you must
be able to obtain these cards at many locations.
If you move towards a system like this
and you can only get one of these sort of equity
issued cards if you want from one station downtown, that
means that the person who depends on two or three buses
to get into downtown can't easily get a card.
So you must be able to maybe get these
at several retail locations or have
fare vending machines in multiple places,
especially in zones of high concentrations of people
that depend on transit and don't have bank accounts.
OK.
So there are ways of dealing with that.
Boston is considering now what they call AFC 2.0.
They're sort of branding it that way.
And they're probably going to be moving forward
with the London model of using contactless bank cards.
So we'll see how it plays out and we'll
see what that does to the payment industry in general
in the US in terms of that means more people will have these.
Does that mean that a lot of readers at retail locations
will start accepting that, and what will that do?
It's a question.
We'll see what happens.
OK.
Last topic is fare analytics.
So obviously, lots of data is generated by these systems.
We've used it for all the [INAUDIBLE],,
you've looked at it in your homework.
So here's an example from one of the students in the transit lab
who has one more year to graduate,
but he's done great work.
His name is Andrew Stutz.
And one of the examples of his work
is dashboard, where you can look at all sorts of fare
transactions by fare product, by pass or no pass, by user type.
And you can sort of filter and see exactly who's
using your system how often.
Let me see if I can show that to you live.
OK.
So here's AFC validations for October 2015.
So if I want to see, for example,
here we're looking at everything.
So we're looking at tickets and cards and passes and monthly
passes and pay-as-you-go.
So if I want to look at stored value, so no passes,
I'll sort of filter that out.
Then of course tariff type becomes 100% pay-as-you-go.
And then you see the breakdown between cards and tickets
for stored value use.
We see the trends by time of day here and by date.
So you can see that weekends are lower and the user type
right here.
So adults very high and then senior students below that.
If you want to look at passes, for example,
we could then say passes and monthly passes in particular.
You see that most of those are cards, not tickets.
Makes sense.
Higher number of students than we saw before, et cetera.
So you can really sort of play with this
and understand how the market segments itself
with these different fare products
that people are purchasing based on the fare policy.
And there's another dashboard for fare revenue.
So these are fare revenues by month across many years.
And you can see the total up here.
But you can break it down again.
So you can look at how much of it is monthly passes
and you can see how much of it is normal commuter
pass versus commuter rail.
And you can see, if you're interested in students,
here's your students.
So you can really slice and dice it any way you want to.
And there's many more applications,
but I just wanted to demonstrate a few.
OK.
So that was it.
I'm not going to lecture anyone for this semester.
So I'll still come.
And I'll let you know about the test
as soon as I have more information on it.
Any questions on fare policy, fare structure,
fare technology?
No.
All right.
Thank you.
[APPLAUSE]