Adding value

Smart cards are making life easier for commuters using public transportation, but more difficult for transit authorities that must manage the complex deployment of the technology, said a new study from Accenture Ltd.

In the shift from a traditional token-payment system to smart cards, transit system operators must track collections and manage new, more advanced software and hardware, the study said.

Accenture is among the IT industry heavyweights that want to break into what analysts and industry experts predict will grow into a billion-dollar domestic smart-card market over the next decade. It is touting the survey results to local transit authorities to convince them they need an independent entity to run their operations.

Poised on the brink of an expected boom, the smart-card market is attracting systems integrators and technology companies such as Affiliated Computer Services Inc., BearingPoint Inc., Cubic Transportation Systems Inc. of San Diego, EDS Corp., ERG Group of Balcatta, Australia, and IBM Corp.

According to Accenture's August study, which is based on interviews with officials from 26 transit authorities worldwide that use smart cards, implementation was more difficult than expected. Of the those interviewed, only half said their programs were successful.

"They underestimated the complexity of doing these things, and making sure they're all tied together and they work," said Mike Boushka, the Accenture partner responsible for the company's public transportation business in North America. "Once you get everything fixed, in place and working, most of the customers seem to enjoy it."

For commuters, the process is simple: Load the card with monetary value via kiosks at transit stations or over the Internet. Pass the card over a sensor at a station, and the fare is paid.

The card, which resembles a credit card but has an embedded computer chip, can store information, pay subway and bus fares and -- in Hong Kong -- pay for retail goods. Many U.S. cities use smart cards on a limited basis. For the study, Accenture interviewed transit officials in Baltimore, Chicago, Oakland, Calif., Seattle; San Francisco; Washington and Ventura, Calif.



TRANSIT ENHANCEMENTS

Among North American transit authorities, those in Los Angeles and Toronto are evaluating proposals to hire a systems integrator to implement smart-card programs. New York is considering updating its transit system, Boushka said.

Dallas-based ACS, a company with broad experience processing payments for transportation services, also is tracking smart-card opportunities.

"You're going to have large numbers of transactions. If you look at the number of people who use any kind of transportation system, it dwarfs anything that you see in the toll industry," said Michael Huerta, ACS' senior vice president and managing director for transportation systems and services.

Getting smart cards into the hands of customers is only one hurdle facing transit authorities. They also must build the systems. That involves new hardware, software and significant back-end processing, he said.

Every transit authority interviewed for the Accenture survey said they were unprepared to initiate and maintain such complex systems, Boushka said. That translates into an opportunity for a systems integrator, he said.

With several facets of the operation to manage, a systems integrator could stand to make $70 million to $130 million or more if on an outsourcing contract from a major U.S. city, Boushka said.

While the capital outlay for such a project is significant, transit authorities can recoup their investments because commuters have to buy the cards, said Gordon Hannah, managing director for public-sector security and identity management at BearingPoint in McLean, Va. "The hope is that with card sales and the convenience of using them, over time you recoup investment on the infrastructure," he said.

Smart-card technology has been around since the 1990s but has not found its niche in the United States, said Jim Krouse, manager of state and local market analysis for Input Inc., Reston, Va.

"It's a technology in search of an application," he said. "Most obviously, you see it on our own Metrorail in D.C. The systems work, but they're still confusing to people. But how often do you see a reader anywhere else around the downtown area? You don't. Clearly, the infrastructure is still lacking."

Because smart cards can be used for a wide variety of functions, developing new applications may yet drive a U.S. smart-card market, Hannah said.



MARKETS ARE MANY

The Defense Department uses smart cards for soldiers to carry their personal and medical history and keep tabs on their whereabouts, Krouse said.

The General Services Administration is issuing smart identification cards to its employees. The cards, which hold personal data on each employee, are used to access GSA's building, improving security. The federal government is considering putting smart-card chips into passports.

For many agencies, implementing smart cards for transit is the first step in turning mass-transit smart cards into debit cards for use in retail establishments, as Hong Kong, a leader in commercial smart-card use, is doing.

A more likely use in the United States in the next five to 10 years: Make one smart card usable for travel across the country.

Today, Hannah said, smart cards "are more or less closed systems, in that you cannot use them outside of that defined infrastructure. And that's the biggest barrier that I see: getting past that closed system approach, which certainly requires a lot more work along the lines of interoperability."

The hurdle to meeting that goal within the next five years is not technology, Huerta said.

"The technical issues are simple to resolve," he said. The complicated issues that need resolving are the institutional questions: Who owns the accounts? How does the money get allocated? What are the business rules in terms of what you accept here and there?

"Those are the tough ones, and those take a long time," Huerta said. "But it's bubbling around in a whole lot of places. It's all a question of seeing who jumps first."

Staff Writer Ethan Butterfield can be reached at ebutterfield@postnewsweektech.com.