Types of Smart Card Systems

Card systems were invented because cash collection is dangerous, expensive and prone to theft. Historically, collection evolved from cash through tokens and magnetic stripe cards to smart cards (also called contactless cards,) getting cheaper for the agency with each step. There are three basic types of smart card fare-collection systems:

1. Stored-value
2. House account-based
3. Bankcards directly at gate

A stored-value card holds the card’s fare value on the card itself. For example, New York’s MetroCard is a stored-value magnetic-stripe card. Washington’s SmarTrip is a stored-value contactless card. The customer purchases a fixed amount ahead of time and periodically refills the card with value, usually at vending machines. As chip prices come down over time, we can expect to see more and more disposable smart cards, called "limited use" cards or LUs.

One important factor in new systems is to move from stored-value cards to account-based systems, where the card’s value is held in the system’s central computer. New York’s EZ-Pass is such a system. The account can be set to refill automatically from a credit or debit card account. Vending machines become unnecessary and cash collection, which is the most expensive revenue method, declines.

We propose the best account-based system: credit and debit cards used directly at transit gates. In it, banks pay for cards, manage the accounts and handle customer service. No refill is necessary; the customer is charged only as the card is used. It has no U.S. model yet.