Chicago seeks proposals for transit payment system

The winning bidder will be asked to replace the Chicago Transit Authority’s fare collection system with a new technology that can accept any form of payment. In exchange for financing the system, an annual ‘transaction fee’ based on transit revenues will be awarded to the bidder. Last year alone, the CTA handled 500m transactions.

The Chicago Transit Authority is seeking proposals to implement the largest-of-its-kind fare collection system that will radically change the way commuters pay for transportation on its 2,222 buses and 8 subway lines.

The project, called the “Open Standards Fare System,” seeks to replace the Chicago Transit Authority’s (CTA) current fare collection system with a new one that will accept any form of payment. That way, instead of accepting only CTA-branded transit cards, CTA buses and subways will be able to accept payment from any form of electronic payment such as a debit card or even a cell phone.

The shift to the Open Standards Fare System will enable to CTA to save money on maintaining the current system, which was installed in 1997 and is nearing the end of its useful life.

CTA: finding a new source
of revenue via PPP

It will also allow the CTA to share in some new revenues resulting from the Open Standards Fare System. That’s because in addition to accepting all forms of electronic payment, the system will also allow customers to purchase debit cards for use on the CTA or any other vendor, such as Starbucks or Dunkin Donuts. The CTA would capture a portion of the transaction fees resulting from these vendors.

These fees could add up to a significant new revenue stream for the CTA. The transit system – the second largest in the US, after New York City – already processes 1.6 million transactions per day. That’s about 500 million transactions annually, according to the request for proposals for the project.

The new revenues would come at a time when the CTA, like many mass transit providers in the US, is facing tightening budgets and rising competition from other modes of transportation. In July, the Federal Transit Administration reported that the US’ mass transit providers would need $78 billion just to bring their systems to a state of good repair.

The CTA said it is committed to pursuing the Open Standards Fare System but “cost is still a major consideration” in its implementation. So the CTA will pursue the project as a public-private partnership, or PPP.

The PPP will ask a private partner to finance all the major steps of the project, which include the design, acquisition, installation, operation, maintenance, repair and replacement of the Open Standards Fare System over the course of a 12-year period.

In exchange for financing all of this, the private partner will receive an annual “transaction fee” from the CTA that will be based on all the transit revenues collected on the system. The fee won’t be payable until the CTA begins to transition to the new system, meaning that the private partner will be incentivised to get it up and running as soon as possible.

In November 2009, 12 firms submitted expressions of interest in becoming the private partner for the project, CTA said in a statement. Since then, the CTA has opened up a data room for the project, which is open to interested parties regardless of whether they submitted expressions of interest.

Access to the data room can be obtained by contacting William Blair & Company, the CTA’s lead financial advisor on the project.

Responses to the request for proposals for the Open Standards Fare System are due 5 November.