Universal Ticketing Agent

COFC

The True Cost of Fare Collection in Open-Loop Ticketing

Open-loop ticketing has evolved from a simple convenience to a complex financial operation. For a Transit Agency (TA), the total Cost of Fare Collection (COFC) is determined by regulatory burdens, transaction overhead, and the financial risks of the chosen technology and business model. This analysis compares three Open-Loop (business and technology) models, highlighting how the UniTiAg approach optimizes these costs.

The Three Models Under Analysis

  1. Classic Open-Loop (cEMV Card-Present): Riders tap their physical or digital cEMV payment cards directly on the validator. The validator acts as a point-of-sale accepting contactless cards, and the TA acts as a traditional merchant, initiating card-present transactions through payment schemes, such as Visa, Mastercard, etc.
  2. UniTiAg without Card Data (Smartphone CRD Token): A CRD Token is generated by the TSMP and managed by a smartphone app. The CRD Token is entirely deprived of payment or personal data, serving purely as a rider identifier.
  3. UniTiAg with Card Data (CRD Token derived from EMV data): To bypass payment scheme involvement at the tap, the validator extracts a PAN hash (within PCI DSS scope) to link it to a unique CRD Token. The CRD Token is derived from non-sensitive EMV data and is used for fare processing without initiating a card-present transaction at the gateway or bus validator.

Let’s compare various COFC components across these open-loop ticketing models.

PCI DSS Compliance

  • Classic Open-Loop:
    • Assessment: Extreme complexity. Processing sensitive card data requires full compliance. PCI DSS certified equipment and software must be used. Discount / concession schemes and dispute resolution processing requires payment scheme PAN tokenization to manage card data, which significantly increases the PCI DSS scope for the TA.
    • COFC Impact: High expenditure on software, hardware, network infrastructure, business processes, personnel supervision (internal security), personnel training, and mandatory annual audits, and liabilities associated with security breaches.
  • UniTiAg without Card Data:
    • Assessment: The TA’s infrastructure has zero PCI DSS scope. Since the smartphone CRD Token contains no card, cardholder, or payment related data, the regulatory burden is shifted to the TSMP.
    • COFC Impact: None (incorporated in TSMP fees).
  • UniTiAg with Card Data:
    • Assessment: PCI DSS scope is localized strictly in the validator’s card reader hardware/firmware. Point-to-Point Encryption (P2PE) exonerates the TA’s host from PCI DSS scope as it is never exposed to clear-text card data. Payment scheme PAN tokenization is not required. UniTiAg provides its own CRD Token convention that the TA can utilize for concessions and discounts.
    • COFC Impact: Moderate. Lowered by scope reduction and lack of network-wide tokenization requirements.

EMV Level 3 Compliance

EMV Level 3 certification ensures that the end-to-end communication between the payment device, the acquiring bank, and the card networks functions correctly for approvals, declines, disputes, and error handling.  All stages of transaction processing, such as transaction authorization, clearing, and settlement, must be compliant with payment scheme by-laws, protocols, and processing rules.

  • Classic Open-Loop:
    • Assessment: Mandatory and laborious. Each hardware/software update requires expensive re-certification with every major payment scheme (Visa, Mastercard, etc.).
    • COFC Impact: High.
  • UniTiAg (Both Models):
    • Assessment: Not required. Since no card-present transaction is initiated at the tap, there is no EMV Level 3 scope. The system utilizes the card only for rider identification. The compliance is shifted to the TSMP (for which it is business-as usual) and is reduced to Card-Not-Present transaction compliance.
    • COFC Impact: None.

Dispute Resolution

  • Classic Open-Loop:
    • Assessment: High friction. For transit, dispute processing often costs significantly more than the fare charges themselves. It requires high personnel training costs to manage scheme-specific rules. Furthermore, incompatible regional processing rules for aggregated transit transactions create massive overhead for fare processing software, especially for cross-regional transactions typical for tourist destinations (e.g., EU allows 15-day aggregation, while the US dictates a 24-hour window).
    • COFC Impact: High.
  • UniTiAg (Both Models):
    • Assessment: Low friction. Disputes do not involve payment schemes and are reduced to direct resolutions between the TA and the rider based on the TA’s internal rules. Riders manage their payments through their TSMP accounts, not the TA. Payment-related disputes (e.g., OTRB refill issues) are handled by the TSMP.
    • COFC Impact: None. Payment disputes are is shifted to the TSMP (for which it is business-as usual).

Payment Processing Fees

The main distinction lies in the aggregation and volume leverage of the Two-Sided Marketplace (TSMP).

  • Factor 1: Transaction Aggregation. Classic models have low aggregation; each tap often triggers an event on the payment network. UniTiAg utilizes high-level tap batching. For example, 20 separate taps throughout a month can be batched into a single OTRB refill transaction, making the fixed per-transaction fee negligible.
  • Factor 2: Volume Negotiation. Because the TSMP serves many TAs as well as other types of online sellers, it handles a significantly higher volume than any single TA could. This allows the TSMP to negotiate “interchange-plus” markups and processing fees that are substantially lower than standard merchant rates.
  • COFC Impact: UniTiAg models provide drastic cost reductions per tap compared to classic models.

Interchange Fees

Interchange is not impacted by aggregation (the percentage remains), but it is heavily impacted by the type of payment instrument used.

  • Classic Open-Loop: Relies mostly on credit cards because debit cards are impractical (high risk of insufficient funds and high per-tap costs for riders). This forces the TA into higher interchange brackets.
  • UniTiAg with Card Data: This model is debit card friendly. By checking the OTRB before travel, the risk to the TA is eliminated, allowing for the use of debit cards which typically carry lower or even zero interchange fees.
  • UniTiAg without Card Data: The most flexible model. It allows the TSMP to utilize any payment method – direct banking, PayPal, other wallet schemes, cryptocurrency, or stable coins – significantly reducing or eliminating traditional card interchange fees.

TSMP Fees for Services Sold (UniTiAg Models)

For purely digital services (no hardware logistics, warehousing, or returns), TSMP fees are typically structured as: ~2% to 3% of the sold fare volume.

This fee reflects the commodity nature of digital transit credit. Unlike consumer marketplaces that charge for buyer discovery, the TSMP charges for the immaterial infrastructure of trust and reconciliation. The fee is consistent with e.g. eBay’s “Specialty Service” Commission Model.

Conclusion

The Classic Open-Loop model carries a “hidden” COFC that scales poorly due to compliance, interchange fees, and dispute overhead. UniTiAg (TSMP) models transform these costs by centralizing compliance, maximizing transaction aggregation, and enabling cheaper payment instruments like debit and direct banking. For the Transit Agency, moving from a “Payment Merchant” to a “Service Provider” via a CRD Token drastically reduces the total cost of fare collection while increasing operational agility.

COFC ComponentClassic Open-Loop
(cEMV Card-Present)		UniTiAg
PCI DSS ComplianceHigh. Full scope across hardware, software, and network. Requires mandatory annual audits and PAN tokenization.With Card Data:
Moderate. Scope is localized to reader hardware/firmware via P2PE. TA host is exonerated.

Without Card Data:
None. Infrastructure has zero scope. Regulatory burden shifted to the TSMP.
EMV Level 3 ComplianceHigh. Mandatory, laborious, and requires expensive re-certification for every update.None. No card-present transaction is initiated at the tap
Dispute ResolutionHigh. High friction and cost; requires specialized training. Regional rule conflicts (e.g., EU vs. US) create software overhead.None. Disputes are direct between TA and rider based on internal rules. Payment issues handled by TSMP.
Payment Processing FeesHigh. Low aggregation per tap; high network event frequency increases fixed costs.Low. High-level tap batching makes per-transaction fees negligible.
Interchange FeesHigh. Mostly credit-card based due to debit risk/friction.With Card Data
Reduced. Debit card-friendly; pre-check of OTRB removes TA risk.

Without Card Data
Minimal. Supports direct banking, PayPal, and crypto, bypassing card networks entirely.
TSMP/Marketplace FeesN/A (Direct merchant costs)2.0% – 3.0% (Includes UniTiAg SaaS and TSMP reconciliation service).