How to design and implement an integrated fare system

Integrated modal fares, which allow riders to access multiple forms of transit (such as trains or buses) using a single ticket or card, is an important poverty alleviation tool. This innovation is especially critical to low-income transit users that might be unable to afford the sum of multiple fares on their way to jobs, schools, health clinics or other facilities.

A wide range of local governments around the world have introduced integrated modal fares as a way to reduce the burden on low-income users. But the design of these systems requires a very thorough analysis of the urban transport modes being integrated. Bad design may foster inefficiency and lead to huge subsidies that the government, and ultimately the taxpayer, must pay for.

Here are some tips on how to prepare for the design and implementation of integrated fare schemes:

1. Note that some modal operators are less efficient than others, and they are operating routes that do not foster price and level-of-service competition. This happens quite often with buses, and route rationalization should be considered before introducing an integrated fare system.
2. In most metropolitan regions, bus networks are not optimized, and are instead split into feeders, trunks and express routes. This creates a hodge-podge of services with varying segment lengths that are not CO2 friendly. These bus networks often survive with subsidies, while their routes parallel and compete with more efficient modes (that are often privately owned).
3. An integrated fare scheme’s area of coverage must be scrutinized carefully, because you might need to have one or more rings in the metropolitan region with different levels of integrated fare.
4. Feeder systems such as vans and shared taxis might also be important to ensure users’ access to mass transit modes.
5. Fraud will creep up in all modes, and designers must examine where the highest risks are to plan anti-fraud measures;
6. Fare evasion in one or more modes can add to subsidies and must be addressed in a timely manner.
7. The level of the remunerative fare (as opposed to the fares paid by users) should be set in a way that will guarantee that each system will be able to cover (at least) its long-run variable costs.
8. Peak and off-peak pricing are instruments to be considered when systems are overloaded.
9. Incentives must be introduced to ensure that the best operators are rewarded while more inefficient operators are penalized.

It is often believed that the solution for integrated fares is just to adopt a good smart card. A good smart card is needed, of course, but the primary challenges aren’t technological. What is more critical is the thinking behind the system must be reflected properly in the smart card. In addition, there are other accounting and accountability aspects that must be considered:

• A clearing-house system in which all the operators are quickly compensated for ridership
• An auditing and monitoring system that must be independent and credible
• A recourse and arbitration system where operators are able to voice their grievances

Some sort of a coordinating regional entity, such as a Metropolitan Transport Authority, is needed to ensure that the payments for services by each modal operator are agreed.  These could be a public fare (the out-of-pocket fare set by government) or a remunerative fare, that is, a tariff that was agreed by government and the private/public concessionaire in their concession contract.

The obligations of each modal operator must also be very clear either in their concession contracts or, in the case of public operators, in their contract program. The rewards and penalties must also be spelled out.

However, the most important aspect of an integrated modal fare system is that a reliable financing mechanism must exist to guarantee that the subsidy will be paid on time.  This could be by law or by some bank guarantee. Non-payment or delays in payment of subsidies lead to lower level-of-service and often total degradation of services.

When planned and delivered correctly, integrated modal fares can help ensure more efficient and accessible systems that benefit all riders, and especially low-income users who need help most.

This post first appeared on The World Bank Transport for Development Blog. 

Publication does not imply endorsement of views by the World Economic Forum.

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Author: Jorge M. Rebelo is a former World Bank (WB) Lead Transport Specialist who works as a mass transit and freight logistics consultant.

Image: Passengers board a Bay Area Rapid Transit (BART) train at the Rockridge station in Oakland, California. REUTERS/Robert Galbraith