FINAL REPORT · record information for later use (e.g. a “loyalty” card which records use of...

FINAL REPORT

City of Ottawa

Smart Card Strategy and Business Case October, 2003 (Republished June, 2005) Submitted to: Submitted by:

City of Ottawa Transit Services

Brian Bourns Engagement Leader KPMG LLP Suite 2000, 180 Elgin St. Ottawa, ON K2P 2P8 613-212-2888

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�CITY OF OTTAWA

SMART CARDS STUDY - DRAFT

OCTOBER, 2003

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��Table of Contents

1 Executive Summary..........................................................................................2

1.1 City Smart Card Strategy ...........................................................................2 1.2 Transit Smart Card Business Case............................................................3 1.3 Summary of Recommendations.................................................................5

2 Background.......................................................................................................7

3 Developing a Smart Card Strategy .................................................................10

3.1 Potential Applications...............................................................................10 3.2 Partnerships.............................................................................................19 3.3 Privacy Issues..........................................................................................23 3.4 Smart Card Technology Choices .............................................................24 3.5 Recommended Strategy ..........................................................................27

4 The Base Case Business Case ......................................................................31

4.1 No Smart Card Comparison.....................................................................31 4.2 Smart Card System Financial Considerations..........................................33 4.3 Other Considerations ...............................................................................39 4.4 Sensitivity Analysis...................................................................................47

5 Conclusions ....................................................................................................49

5.1 Recommendations ...................................................................................49

Appendix 1 – Detailed List of Assumptions.............................................................51

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��1 Executive Summary

Smart cards are credit card sized cards with the capability of sending, and in some cases receiving, information either by wireless radio transmissions (“contactless” cards), or through contact between the card and a reader. Sophisticated cards can identify themselves to a reader, transmit information, receive information, process the information and store information – essentially they are very small computer systems that fit in a wallet. They can be used to authenticate identification (e.g. open a door for authorized cardholders), make a payment, and to record information for later use (e.g. a “loyalty” card which records use of the card to make purchases, or a medical information card).

1.1 City Smart Card Strategy

The City of Ottawa already uses smart cards for a number of diverse functions, most notably:

� As an employee identification and access control card;

� As a means to pay for use of parking meters; and

� As a Library Card (the bar code identification does not qualify as a “smart” card, but the magnetic strip component which provides a way to pay for photocopying and printing does).

In theory, there would be advantages to both the city and its customers if a single card could be used for these, and a variety of new applications that could be developed, such as:

� Public transportation – a card that could be used as a bus pass and replacement for cash or tickets in paying fares; and

� As a way to pay for, or gain access to, recreation facilities and programs.

Further benefits could accrue by using the card with other partners, particularly using the same card as a student card for both secondary and post-secondary students.

However, there is already substantial investment in the current systems, particularly the access control systems and the parking meters, each of which use different technology, and different technology than the libraries use. A transit smart card would achieve new benefits, but would require a more capable technology than any of the current systems. This makes it impractical to institute a comprehensive “city card” immediately. As a result, the recommended strategy involves establishing a transit card that has the technological capability to be a comprehensive “city card”, and adding new uses to the same card when the existing technology requires

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��replacement, or when new uses are developed for other purposes. Meanwhile, there is an opportunity to use the existing security card (the employee ID card) to give the public limited access to recreation programs and facilities without staff intervention.

1.2 Transit Smart Card Business Case

Implementing a transit smart card would provide a number of benefits to both customers and the city. In particular, it would:

1. Facilitate, encourage and promote the launch of a “ Personal Ecopass” , a permanent pass, paid for by monthly debit charges, with no need for the customer to visit a vendor each month. This would improve customer convenience, encourage increased ridership and provide “ equity” between passengers (only employees of participating businesses can use this service now).

2. Provide a fare payment system compatible with that of STO, which currently has a smart card system, providing better convenience for passengers of both systems, particularly as STO begins use of the smart card for ticket and cash payment.

3. Simplify the fare verification process, improving operator-working conditions (Operators must currently deal with over 50 ways passengers can pay fares and verify each) and allowing them to devote more attention to verifying photos, customer relations and operation of the vehicle. This, and electronic verification of payment will reduce fare fraud.

4. Provide a way to allow ‘tickets’ to be accepted for the O-Train and to enable controlled access at some stations.

5. Improve image of transit.

6. Provide better information allowing pass pricing to more accurately reflect use, inter-agency pricing (e.g. STO) to reflect actual use data, and allow analysis of transfer patterns.

7. Provide the potential to introduce new fare and pricing approaches, such as: fare by time of day, fare by distance, student summer passes, adult annual passes, and reserved park and ride spaces.

8. Provide opportunities to establish positive partnerships, particularly with educational institutions.

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��9. Present opportunities to migrate to a compatible “ city card” over time.

10. Defer the need to replace the on-bus fare boxes, and eliminate the need to consider using modern automated fare boxes (count and verify bills, provide change).

The business case analysis was designed to determine what these benefits would cost. The analysis indicated that the system would be most cost-effective if developed in partnership with STO, and would benefit from a 33% provincial subsidy made available for many transit capital projects. The table below compares this preferred approach with the likely outcome if the City of Ottawa went ahead on its own, with no partnership with STO and no provincial subsidy,

Summary of Financial Implications Before Provincial

Subsidy

With Provincial Subsidy

Capital and One-time Costs (net of subsidy)

$7,607,000 $5,745,000

Annual Impact at Maturity (Based on Year 6)

Operating Costs $1,018,000 $1,018,000 Operating Savings ($783,000) ($783,000) Revenue Enhancement ($1,484,000) ($1,484,000) Total Annual Impact ($1,249,000) ($1,249,000) Return on Investment 17.3% 23.3% Net Present Value (10 years) $630,000 2,471,000 Years to Payback Investment 8 years 7 years

The capital costs of the program would be about $7.6 million, with the potential for an off-setting $1.8 million provincial subsidy. If the system were in place and mature today, there would be annual saving of about $700,000. However, the smart card system would be phased in. It will require one year to build the system. Smart cards would only be used as passes in the first year of operation, would be used for cash and ticket payments in the second year, and paper tickets would not be completely eliminated until the end of the fourth year. Given the planned growth in ridership and expected inflation over this period, the savings are expected to be $1,250,000 per year when it reaches maturity (data from the sixth year of operation is used). Over the first ten years of operation (including the phase-in period), the system would more than pay for itself,

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��having a net present value of $630,000 even before considering the potential provincial subsidy. Based on the year 6 data, the annual costs of operating the smart card system would be about $1,000,000. Other operating costs (pass and ticket printing, pass and ticket sales costs, Sales and Info Centre costs) would be reduced by about $780,000, and revenue enhancement (reduced fraud, advertising on cards) would add $1,480,000 to the bottom line.

Based on these findings, the recommendations are outlined below.

1.3 Summary of Recommendations

1. That a transit fare payment smart card be implemented in Ottawa.

2. That the City of Ottawa adopt development of a multi-application smart card as a long-term goal, with the transit smart card the first step.

3. That the technology for the transit fare technology system be selected with a view to:

a) Compatibility with STO;

b) Capability for multi-application use over time;

c) Flexibility to accommodate changes in requirements in the future (card readers with multiple capabilities); and

d) The availability of a family of related products, such as combination cards and single-use paper “ cards” .

4. That the integration of CLASS and the Security System back-office be explored to accommodate controlled access to recreation facilities and programs

5. That the potential to integrate parking meter payment and parking lot control, the Library system and other possible uses onto the multi-application card be considered as new investments are required to expand capability or replace existing infrastructure.

6. That the first steps towards developing the transit smart card be:

a) Negotiating with the STO the best approaches to ensure compatibility, interoperability and minimum cost.

b) Determining the implications of using the GPS hardware now being installed on the buses as the foundation for the on-bus smart card system.

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��7. Subject to satisfactory outcomes from recommendation 5, the city proceed to:

a) Determine the interest of school boards and post secondary educational institutions participating in the smart card project.

b) Ensure the eligibility of the major investment items for provincial subsidy.

c) Establish firm pricing for the major system components.

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��2 Background

The purpose of this report is to examine the high-level business case for the use of “ smart cards” to enhance various City of Ottawa operations. This requires developing a preferred model or strategy for smart card implementation considering the various possible uses within the city, and examining the costs and benefits (both financial and other) associated with smart card implementation.

“ Smart cards” are credit card sized plastic cards that store information and have some means of communicating with a “ reader’ in order to complete a transaction. The traditional magnetic stripe credit card is a very simple example, with information stored on the magnetic stripe and transferred to the reader when the card is swiped.

Modern smart cards have considerably more capacity. They can store as much as 32K of data, and can contain microprocessors to carry out complex calculations and communications. They can communicate through “ contact” with a reader – having small gold plated contact points that the reader engages with retractable contacts, or even “ contactless” communication using radio waves to send messages when placed close to a reader.

Smart card systems can be used to pay bus fares, open doors to authorized personnel, pay for parking meter use, to make payments at vending machines, photocopiers or printers, manage customer “ loyalty” or reward systems and a wide variety of other uses that require either identifying a card holder or making a payment, generally for low value items.

The card itself cannot do anything without a compatible environment that includes:

� Card readers on the bus, door, or machine that can communicate with the card.

� Card issuing/vending facilities to provide or sell cards to users and designate the rights users will have with the cards.

� Card “ revaluing” stations that allow customers to purchase additional rights (such as next month’s bus pass) or add monetary value to the card.

� A “ back office” computer system that keeps track of the cards issued, what rights each card has, authorizes use of the card (such as ordering the door to open) and may keep track of card use.

� A communications system, or network that connects all these elements.

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��Smart Card System Components (Transit-Only Solution)

Smart Card

Card Issuance(STO Sites) Customer database

Revaluing Unit(Vendor sites)

Transaction database

On busCard Reader

In developing a strategy for smart card use in the City of Ottawa, a number of important factors need to be considered:

1. Should one smart card system be developed to meet most or all city requirements, or should separate systems be developed to meet the needs of public transit, parking, library and other users?

2. Should the smart card system(s) be designed exclusively for city purposes, or should they consider the needs of potential partners, such as the school boards, universities or even the commercial sector (such as use to buy goods or services from stores)?

3. What technologies and types of cards should be considered, depending upon the uses contemplated?

4. How should a city smart card(s) system be phased in?

Each of these factors is addressed in this report to develop the best strategic approach the city could adopt. Finally, the report considers whether there is a business case, whether the benefits that will accrue exceed the costs involved. Some of the costs and benefits considered can be

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��quantified financially, items such as the costs of the hardware and software involved, and the potential to reduce fraud (use of services without payment). Other issues also need consideration, such as privacy issues, customer convenience, and the potential to tailor services more effectively to customer needs and are discussed, although it is difficult to quantify the cost or benefit in monetary terms.

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��3 Developing a Smart Card Strategy

3.1 Potential Applications

This chapter examines possible uses of smart card technology in various aspects of the city operation, the requirements of each possible use, and the benefits that could result. Where existing smart card applications are in place, the potential to add those applications to a common card is considered.

3.1.1 Transit

OC Transpo currently uses plastic photo ID cards issued to transit pass holders with three different options: Monthly Pass, Annual Pass and Ecopass (each of these options has a variety of sub-options for students, senior citizens, and adults). The card is used for identification purposes and it must be presented to the bus driver during boarding. In the case of monthly and annual passes, the users carry a paper pass together with the card representing the current month or year that the card is valid, as well the type of fare purchased such as regular or express, adult or student, etc. In the case of Ecopass, the employer is responsible for collecting the cards that are no longer valid and returning them to OC Transpo.

3.1.1.1 Application

A smart card solution could be used to replace the current plastic cards and provide enhanced photo ID cards to pass holders. Instead of carrying a paper pass, the smart card holder would be able to store all the information related to that card in the chip that would be read by electronic readers installed on the buses. A smart card solution could be extended to support e-Purse capability, providing for the replacement of tickets, day passes, and convention or other specialized passes.

3.1.1.2 Benefits

1 – Increase convenience and ridership with Ecopass. OC Transpo would be able to expand the Ecopass program to the general public. For example, a passenger could authorize a monthly debt to their bank account rather than having to purchase a pass each month. If payment was stopped, the card would simply be “ blacklisted’ , preventing its use until payment was made. This convenience, and a related 15% discount, is currently only available to employees of participating employers, who take a payroll deduction. Extending this program to the public

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��could result in an increase of bus ridership due to the convenience of not having to buy monthly passes, and would eliminate an inequity in that the discount is only available to selected riders.

2 – Improves customer convenience and inter-operability with STO. Many OC Transpo customers transfer to the STO buses that operate in Gatineau, and many STO customers must transfer to OC Transpo to complete their trip. STO has a smart card system in place. A compatible OC Transpo smart card system would allow seamless transfers with minimum inconvenience. Without a compatible smart card system, OC Transpo will have difficulty confirming the validity of STO smart cards, and OC Transpo passengers will have more difficulty transferring to STO services.

3 - Better fare verification. Bus operators currently face a wide range of fare types that must be validated visually, various types of monthly, annual and special passes each differentiated by fare category, and age/status of passenger), transfers, tickets, cash and now STO smart cards. In all, there are over 50 different ways to pay a fare (including the right to a free fare). Properly verifying the validity requires considerable time and attention from the operators, resulting in varying levels of effort being applied to the job. Some fare media can be easily forged. Fraud related to card/ticket/pass duplication or expiry would be eliminated with a machine (reader) validating each payment, allowing drivers to focus only on verifying the photo and the safe operation of the vehicle.

4 – Better operational planning. OC Transpo would be able to establish the frequency of use of various fare types, and would be able to understand linked trips (trips including a transfer) based on the information collected on the bus readers. These data would allow for more informed fare setting, giving policy makers a better understanding of the level of use of various fare types and pass categories.

5 – More flexibility to introduce new fare approaches. A smart card solution with e-purse capability could provide OC Transpo with the opportunity of implementing fare by distance or fare by district and introducing specialized fare types, such as discount by time of day or day of week or related to special events.

6 – Light Rail fare system. The O-Train cannot accept paper tickets and special arrangements have been put in place to compensate for this (cheaper cash fare and children travelling free). An electronic ticket would enable tickets to be used for O-Train fares and an electronic fare system also opens the possibility of having controlled access at some or all stations, thus decreasing or eliminating the need for fare inspection.

7 – Fare options for light rail. The planned light rail system will introduce new fare collection requirements. Recent reports from Edmonton suggest increasing fraud among users who only need to use the rail vehicles with POP fare systems. In Europe, some systems with extensive, entirely POP based fare collection systems experience as much as 15% fraud rates (which would

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��correspond to $15 million per year based on OC Transpo’ s $100 million per year fare collections). If the system is operated on an honour system (like the POP system used on articulated buses) it could become subject to substantial fraud over time unless there is a significant presence by fare inspectors. Shifting to a controlled access system without a machine-readable payment mechanism would require staff posted at each station access point, a very expensive solution (approximately $3 million per year for a basic 10 station system). A smart card system would assist with either approach, allowing controlled access on an unattended basis, with the card readers controlling turnstiles to allow access to the stations, or providing easily verifiable tickets for fare inspectors.

3.1.1.3 Timing

There is no particular barrier to implementing immediately, provided the business case is appropriate. Coordination with the GPS project would mean that development work could commence in 2005 with deployment starting in 2006.

3.1.2 Library

The City Library is in process of replacing the old library cards with a new one containing bar code and magnetic stripe technology. The new cards are not personalized (no name, no photo), however, the bar code number is connected to the user information stored in a central database. The magnetic stripe provides e-purse capability and it is used to store cash to pay for photocopies and printing services at the library.

3.1.2.1 Applications

A smart card solution could be used to replace the bar code and magnetic stripe technology, avoiding the need of having two different types of readers. The user information could be stored in a chip, which could also provide e-purse capabilities.

3.1.2.2 Benefits

1 – Integration with inventory control system. With the implementation of digital tagging, a smart card solution could be easily integrated considering that the same reader could be used to read the cards and the digital tags.

2 – Use of the e-purse to pay fines and any other related expenses in the library. Considering that the user will have a smart card with e-purse capabilities, the use could be

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��extended to pay for fines and to buy food and beverages at the vending machines located in the library facility.

3 – Better control of fraud and human error. Similar to Transit application, since the card is going to be read by an electronic reader, the possibility of human error with data entry and the fraud related to card duplication could be nearly eliminated.

3.1.2.3 Timing

The library already achieves many of the benefits possible from a smart card with the new bar code and magnetic stripe combination card. The card is cheaper than a smart card to issue, and the infrastructure (readers for photocopiers and printers) is already in place. The next major group of benefits will come with digital tagging of books and other materials. This would allow unattended check out of materials, provide control of unauthorized removal of materials (theft) and reduce the costs of materials control (check in and restocking in particular). However, the digital tagging technology is currently experimental and still expensive. The library system expects to consider its adoption over the next five years. The conversion to digital tagging would represent the most appropriate time to consider integrating the library card with the transit smart card, making it a multi-application “ city card” .

3.1.3 Parking

Traffic and Parking has a smart card solution already implemented in the parking meters and in some parking lots in the city. There are two types of cards/solution. For the parking meters application, the cards have a contact chip (contact card), which allows the reader to touch the chip in order to read the information. This card has e-purse capability and can be loaded with tokens of 25 cents to be used in the parking meters. For the parking lot application, the cards have a contactless chip (proximity card) and the users only need to waive the card in front of the reader in order to get access in the parking lot.


The use of an enhanced type of smart cards and readers in the parking meters and parking lots could improve the current application by providing more flexibility (replace token card with e-purse) and more convenience (include terminals to revalue the cards).

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��3.1.3.2 Benefits

1 – One card solution for parking meters and parking lot users. With an enhanced version of smart card and readers, the parking meters and parking lot users could have the same card/reader working everywhere, resulting in more convenience and possible some cost saving due to reduced maintenance.

2 – Possible increase in revenues. Having one smart card solution that is integrated with OC Transpo and library could put parking capable cards into many more hands, resulting in more potential users of parking meters and parking lots.

3.1.3.3 Timing

The existing parking card solutions provide the key available benefits – other than general availability. There would be increased customer convenience from being able to use a general-purpose card in the parking meters for instance. However, the current parking meter heads will not read a general-purpose card, and replacement would cost about $2.5 million. The heads are expected to last another five years. The most appropriate time to shift the parking meter operation to accepting a general purpose smart card would be when the heads require replacement for other reasons, at which time the cost would be insignificant. Similarly, the parking garages tend to use different technology than the standard city security system. Consideration should be given to standardizing as expansion or replacement of the systems is required.

3.1.4 RPAM Security – City Employee Card

RPAM Security is responsible for issuing identification cards to city employees that are also used to control access to city facilities. RPAM is completing the process of replacing all the existing readers and cards (a variety of systems were in place before amalgamation) with a standard contactless technology (proximity cards). Each card has a unique number and an internal chip that is associated with the user name in a central database. Every time the card is used (read by a reader), the information is transmitted to the database for verification. If the card number has permission to access that door, the system transmits that information to the door-lock mechanism, which opens the door. The system keeps a log of card numbers and point of access for possible future inspections.

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��3.1.4.1 Applications

The use of an enhanced type of smart cards and readers in the RPAM Security system could improve the current application by providing more convenience to the users, since the same card could be used for Transit, Parking, Library, etc.

3.1.4.2 Benefits

1 – Economies of scale. RPAM Security could be the entity responsible for issuing and managing the smart cards for the City of Ottawa. Since they already have a central database in place with a back office system to manage the facilities access, and the in-house expertise to provide support and maintenance to the existing hardware and software, having the smart cards integrated with Transit and other applications could result in some economies of scale.

2 – City employee convenience. Considering that a great percentage of city employees are either transit riders or city parking lot users, they could benefit from having one single card to use on the bus/parking lot and at work.

3.1.4.3 Timing

The customer convenience from combining the city ID card with the transit card, for example, would just be removing one card from the wallet of some employees. This benefit would expand to some members of the public if the recreation uses noted below were implemented. The current Badgemaster “ Prox” technology used to create access cards for City staff does not offer true smart card functionality. The costs of replacing the recently installed card readers throughout city buildings would be significant. However, it is possible to purchase cards with dual capability (e.g. a general-purpose capability for the transit card use and the “ Prox” capability to operate the security system. If a general-purpose card is implemented, the use of the dual capability cards could be considered as the first stage, with the infrastructure converted to a common standard, as replacements are required over time..

3.1.5 Recreation

Community Services currently uses the CLASS system for registration of recreation programs. The customers have the option to register over the phone, Internet or personally by going to one of the Client Services Centres. Authorized employees use the RPAM Security card to access the recreation facilities doors where readers are available. In most of the facilities, the access control is currently done by security guards and keys are used to lock the doors. There is a plan for installing readers in all recreation facilities and replacing the employee cards with contactless

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��technology (proximity cards). Community Services is developing a model facility that is intended to be usable staff free, with clients issued cards that would give them access to the facility consistent with the services they have purchased.


Smart cards could be issued to recreation customers in order to provide identification and access to the facilities. This solution would require integration between CLASS and RPAM Security system.

3.1.5.2 Benefits

1 – Reduce the cost of controlling access to facilities. Once the customer is registered for a program, the Class system would communicate with RPAM security providing the card number and the details of the recreation facilities access that should be granted. This will reduce the staffing required to control access and provide better control of the customers in each facility.

2 – Provide fee/package flexibility. Customers could be given access to a wider range of programming options and combinations, for instance, distinguishing between access to a swimming pool, all swimming pools, and fitness centre access with and without swimming, etc. This fee flexibility could result in increased use.

3 – Store information. Since smart cards have the capability of storing information in a chip, some customers such as athletes could use this feature to record data about physical performance/activities. This information would be carried in the card with the user and retrieved in any facility. Another application could be at daycare or day campus. The card could be used to store data about a child’ s health issues or parents’ emergency contact information.

3.1.5.3 Timing

An immediate solution is required, given the planned access control facility. It can be easily accommodated by the RPAM Security system, simply using installing card readers and entering the access rights of registrants manually. However, if the approach proves useful and widespread, an automated link between CLASS and the Security system will be required. If the transit card is established, dual function cards could be issued to recreation users, allowing them to use the same card to access transit and recreation services. The same restrictions with respect to the Badgemaster technology outlined in section 3.2.4.3 also apply to CLASS.

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��3.1.6 Employment and Financial Services

Employment and Financial Services currently uses a magnetic/bar code technology card to identify and provide access to the customers at HRDC funded job searches offices. The card has no identification or picture since the customer data is stored in the central databases linked with the card barcode number. The only use made of the data is in allocating the costs of the service between HRDC and the city, although it does provide a record of the frequency of use by various recipients.

Employment and Financial Services also provides transit access to clients, generally, by adding the cost of a monthly pass to their benefits. When the program was first introduced, Employment and Financial Services handed out the passes and tickets to clients, which ensured that they received a transit benefit. . In terms of transit passes and tickets purchased in bulk for distribution to clients, OC Transpo provided a 20% discount, or up to $375,000 annually in discounts. However, this process was onerous to administer and adequately control. Payments are now made to clients directly in cash. It would be possible to supply fare instruments electronically to these clients through the use of smart cards.


Smart cards could be issued to clients in order to provide a more secure way of identification (e.g. to aid in cheques cashing), however, the provincial authorities should be the ones responsible for addressing this issue.

With a transit smart card, the social workers could simply authorize the additional month’ s use ensuring the funds are actually used for transit service, however, there is concern it may be more administratively complicated than simply issuing the cheques.

3.1.6.2 Benefits

Bus passes acquisition. The smart card system would allow better certainty that funds intended for transit are used for transit. The smart card system would also remove the need for clients to actually purchase monthly passes. The smart cards would have to be loaded through funds supplied by Employment and Financial Services, with the actual usage of the smart cards and the appropriate aggregate discount made available on a monthly basis to Employment and Financial Services.

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��3.1.6.3 Timing

The current approaches seem to work adequately. The bus pass validation approach could be considered it a transit smart card is implemented, but the incremental benefits appear marginal.

3.1.7 Fleet

Fleet has its own card application with bar code technology. Each card is linked with an Employee ID and is used for identification purposes when entering a work order, requesting an inventory part, etc. The solution has bar code readers to provide data entry to the system. Work orders, inventory parts, and others also have barcodes implemented, which facilitates the process of data entry by being scanned with a reader. Various systems identifying vehicles and drivers for fuelling are being converted to a common system.


A smart card application could integrate the employee ID with the current bar code solution, although smart card readers would need to be added.

A more comprehensive solution would replace the bar codes for both employees and parts with a digital tagging solution used to identify inventory parts, and work orders. The same process of data entry could be implemented with readers that are able to read both smart cards and digital tags.

3.1.7.2 Benefits

One card solution for Fleet employees. The same employee card could be used to identify the employee in the system and to provide access to facilities.

The digital tagging system would provide more effective inventory control and management.

3.1.7.3 Timing

The benefits to a partial switch away from bar coding are marginal. Implementing a system compatible with the multi-application smart card should be considered when digital tagging is implemented.

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��Most of the technologies in Fleet are currently associated with either the Maximus M4 Fleet Management System (Municipal Fleet) or the Corporate SAP ERP solution (Transit Fleet). Another project is underway to determine whether Fleet should consolidate operations within M4 or SAP. The outcome of this decision will determine the future direction of Access Cards, Smart Cards, and all other technology initiatives within Fleet Services.

3.2 Partnerships

The City of Ottawa could consider a number of partnership options in developing a smart card project:

3.2.1 STO – City of Gatineau

The Socièté de Transport de l’ Outaouais (STO) provides public transport services in the City of Gatineau. Many OC Transpo riders transfer to STO buses, and many STO riders transfer to OC Transpo buses. The two systems recognize each other’ s passes and fares as either full or partial payment of fares due. The STO has implemented a smart card based fare payment system and has equipped all its buses with card readers. It initially introduced the cards to serve as passes for students, and has over a period of years expanded the use to all pass categories. It offers the equivalent of the Ecopass used by OC Transpo riders who receive a discount for signing up for an automatic payroll deduction system for a perpetual bus pass. STO has now extended this approach to anyone who signs up for automatic debit deductions from their bank account (making the discount available to all users), an approach not practical without smart cards. STO is planning to introduce the “ e-purse” component of the cards next year, allowing use of the cards for single fare payment, replacing tickets). The implementation of various new capabilities of the cards has been slow, both as a result of a cautious approach, and as a result of a decision to devote relatively few resources to the system, given STO’ s size. With OC Transpo buses not equipped with card readers, STO passengers must not only present their smart cards on OC Transpo buses, but must also show their receipt demonstrating the card has been updated for the current month – as the cards have no exterior indication of their validity. There would be a substantial convenience to many OC Transpo and STO customers and operators if the two systems could read and recognize each other’ s cards. This could be accomplished a number of ways, including:

a) OC Transpo could simply specify that its new cards be of a type readable by the existing STO equipment, and that its new readers and related software be capable of reading the STO cards.

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��b) OC Transpo could negotiate with STO to implement the same system, whether by

partnering with STO to run a combined “ back office” and share the costs of operations and future upgrading of the back office, or whether it involved setting up a virtually identical parallel OC Transpo system with regular information sharing protocols.

c) OC Transpo could issue an RFP requesting bids for a fully integrated system, leaving it to vendors to propose a compatible system for OC Transpo, or a new system for OC Transpo and compatible upgrades for STO.

The STO system was one of the first introduced, having been implemented first in 1998. Its card does not have all the capability of modern cards, however, it does have the capability to carry out all contactless functions that the City of Ottawa seems to require, even for a multi-use card. It is also possible to adopt a new card with a combination of contactless and contact interfaces to implement some approaches. Vendors appear to be offering cards with these capabilities that should be “ backwardly compatible” with the current STO cards, but this remains to be tested. STO’ s back office application, which is currently maintained and developed (as required) by limited in-house staffing at STO, could be a limiting factor, particularly with no large vendor supporting it (the original developer is no longer in the business). This concern would have to be addressed by either:

a) Augmenting the STO staffing with additional in-house staffing from Ottawa; or

b) Identifying a contractor to provide support to the current system; or

c) Implementing new back-office software capable of operating in the current hardware environment.

Clearly, there is a strong advantage to implementing a system that is compatible with STO. In addition to improved convenience for passengers, the impact on passenger boarding times of requiring a duplicate manual verification system (like the current check of receipts which will become more problematic as more passes are paid for by direct debit), and the potential impact on fraud of an ineffective double check (for instance if STO passes are simply accepted without being read) argue strongly for compatible if not integrated systems.

3.2.2 Post Secondary Education

Smart card systems are being implemented at many post secondary educational institutions. While student cards have long been issued for identification purposes, the current post secondary card includes the capability for providing security access (to dorms, labs, etc.), tracking cafeteria usage and library loans, and paying for photocopying, printing and vending machine usage.

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��They generally include a contact interface as this provides a cheaper and more secure interaction for low value transactions (such as vending machines) and are considered more secure, but may also include contactless interface for access control. Students are major transit users and are a key target market for any transit card. OC Transpo has also discussed at various times approaches that would include fare payment in student fees, giving all students unlimited access to the bus system, although this has not yet been implemented. Combining a post secondary student card and a city transit card could introduce benefits for both parties. The cost of issuing one card could be eliminated, the implementation of universal student access would be simplified if desired, OC Transpo would have better control on who is a student (cards would expire at the end of a term or year unless extended when re-registered), and there would be more encouragement for students to use the bus, whether the result of a universal pass, or simply the ready availability of a fare payment mechanism. This approach would require the use of a combination, contact and contactless card, at least for those cards used as post secondary student cards. It would be possible to use regular contactless cards for regular users and combination cards for students. If the city card were used as a library card as well, the single card could also give students access to the library system.

3.2.3 Secondary Schools

The library currently has an arrangement with one high school to issue student cards that include a bar code, allowing the same card to serve as the student’ s library card. The same approach could be taken with any city card, whether initially a transit card or one with broader uses. Secondary school students are also an important market for public transit, and some benefits would come from issuing secondary school student cards on smart cards that could also be used for transit, library services and possible other city services. The process would eliminate the need to issue two cards to students each year, improve the reliability of the student card as justification for student fare levels and may encourage students to use transit and the library.

3.2.4 Employers

Many employers in Ottawa issue employee identification cards that contain a picture and have the capability of activating contactless security devices. With the Ecopass system, employers are also involved in managing employees’ access to transit. To the extent a transit smart card, or better still, a multi-purpose city card is issued; it would be convenient for users to have the card also work as their employee identification card. Given the installed infrastructure and need for compatible technologies, there would not likely be significant interest at first. However, the city may want to consider at some stage a system with allows employers to issue cards compatible with the city card in a way that allows the same card to serve as the bus pass, library card or e-purse.

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��3.2.5 Banks and Financial Institutions

A partnership with a bank could include use of the bank’ s ATMs as revaluing stations, and/or operation of the back office and payments settlement mechanism by the bank or another financial institution. The banks are contemplating the introduction of smart cards as a vehicle for small value financial transactions. This would involve the ability to add value to a smart card at an ATM, and the ability to use the card at any suitably equipped commercial establishment, which could be a bus, a vending machine or a store. The bank would then forward cash to the vendors corresponding with the use of the card at their establishments. The use of the ATMs as revaluing stations would reduce the need of the city to establish its own parallel infrastructure for revaluing cards and would improve customer convenience because of the widespread nature of the ATM network. However, the banks appear to have settled on a contact interface, which would require a combination contact/contactless interface for any city card. An independent financial settlement mechanism would be a useful, almost essential element of a card broadly used in the community, although one of the findings of the Barrie experiment was that there is no clear and acceptable model of what these services will cost and how they will be paid for. However, it is not a key element of a closed, city-only system. The banks appear to be three to five years away from launching any significant bank initiated card system. That suggests a city card would have to be delayed if introduced in partnership with a financial institution. It also suggests, however, that there may be suitable cards for miscellaneous small value transactions in the mid-term, making this less of a priority for a city initiated venture. However, the standard bank small value transaction card will likely be contact only, suitable for instance for a parking meter, but of limited value as a transit card.

3.2.6 Business Community

There are two ways the general business community could be partnered in a city card. One would be to issue the general-purpose small value transaction card discussed above as part of a city card, and encourage merchants throughout the community to adopt the card and install suitable card reading equipment. The second would be implementation of a “ loyalty” card in co-operation with one or more merchant groups. While large national firms are able to launch their own products (such as the Esso card), smaller, independent merchants cannot. It has been suggested a municipality could play a role in preserving downtown commercial areas, for instance, by launching cards with a loyalty component to support the target merchant communities. Neither of these approaches fits within the generally accepted role of local government, and as noted above, both represent business opportunities that the banks or other financial institutions are likely to fulfill, at least to the extent that they prove to be viable business concepts.

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��3.3 Privacy Issues

Privacy must be clearly and carefully addressed early in the project life cycle. For a municipal smart card implementation the provisions of the Ontario Municipal Freedom of Information and Protection of Privacy Act (MFIPPA) will apply. Depending upon the extent to which private sector integration is pursued, other legislation such as the federal Personal Information Protection and Electronic Documents Act (PIPEDA) may also apply.

Privacy concerns tend to fall into two broad categories, firstly, the degree to which a system has the potential to survey the actions and movements of its users and secondly, the degree to which personally identifiable information will flow with or without the consent of the data subject throughout and beyond a given system.

Both of these areas of concern may be adequately addressed within a privacy sensitive system design employing appropriate technical and procedural controls. To reduce the potential for surveillance, anonymization and pseudonymization techniques may be employed to prevent the identification and profiling of individuals while allowing reporting of card and system use, and the revocation of rogue cards to continue. STO employs a system, which keeps client data separate from usage data, in completely separate databases. Thus, one database knows how each card is used, providing the basis for planning decisions, but does not know which card belongs to whom. Another database keeps records of client data in order to allow customer relations activities (e.g. returning lost or stolen cards, fielding customer enquiries, etc.)

The privacy concerns associated with multiple applications smart cards are significantly more complex than those associated with single purpose (transit and other transportation) applications. With multiple applications placed on a single smart card, provision should be made to ensure that all data elements on the card remain logically separated from one another.

Data access controls should be implemented to ensure that each application could only access on-card data for that specific application.

It is imperative at all points of system interaction to emphasize cardholder consent and control of their own personal information.

It should be noted that although consumers have a distinct sensitivity to privacy and security issues, the majority of consumers have been shown to adopt a pragmatic approach to privacy and are, “ willing to allow people to have access to, and to use, their personal information where they understand the reasons for its use, where they see tangible benefits for so doing and when they believe care is taken to prevent the misuse of this information.”

For this reason, an effective communications plan is as important a privacy tool as a coherent system design.

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��3.4 Smart Card Technology Choices

There are a wide range of technologies and card types available. Transit systems have generally selected contactless cards because they accommodate faster boarding, an important consideration on congested bus routes (for example when large groups are boarding the same bus at major Transitway stations). OC Transpo has established a contactless interface as one of their requirements for this reason. While this narrows the choices, there are three broad categories that warrant consideration:

3.4.1 Proxy

The “ Proxy” card type, used in the city’ s security application, is a contactless card that simply responds to the reader with a unique number, identifying the card (and therefore hopefully the card holder), allowing the back office to determine whether that particular card/cardholder is authorized (to enter the door or whatever the reader controls). It has no capacity to record information beyond the unique number and the number cannot be changed by the reader. The card itself is very inexpensive. It could respond to a number of city requirements. It is currently the standard employee ID card. It could be used as a bus pass, but not as a ticket or cash replacement. It could be used to cover the significant recreation needs, which are basically related to controlling access to facilities. It could be used to control access to parking garages for monthly parkers, but not for parking meters or daily parkers. It could serve as a library card, identifying the cardholder, but could not replace the e-purse function provided by a magnetic strip on the current card (although a magnetic strip could be added). One significant advantage is that most city buildings have been outfitted with card readers compatible with this card type, readers that would have to be changed if a different card type was selected as a multi-use card that includes the security application.

3.4.2 MIFARE

The “ MIFARE” is a contactless card with a microprocessor and on card memory. STO uses a MIFARE card with 8K memory capable of managing e-purse applications, and generally capable of carrying out all functions that the City of Ottawa would require of a contactless card. It has a unique identity number and could therefore perform all the functions a “ Proxy” card could do – except that the existing card readers that secure city buildings cannot read the MIFARE card, and would have to be replaced or another chip could be added for City employees (see Combo below). It could replace tickets and cash on the bus with fares deducted from the e-purse on the card. It could serve as a library card, including a payment mechanism for photocopiers and printers, although the current magnetic strip readers would have to be replaced. It could serve to control access for monthly parkers, could be used for payment by casual parkers at city lots, and

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��could in theory be used for parking meter payments – although the meters would have to be replaced, and contact meter heads are generally used due to the lower power requirements (a parking meter does not have an electrical supply other than batteries). There are other types of contactless cards. The MIFARE standard is generally referred to as an “ A” type card. Motorola has a “ B” type in use and Sony has recently launched a “ C” type. While each has its proponents, the capabilities are generally similar, and the compatibility with STO, combined with the extensive use of the MIFARE standard suggests it would be the most appropriate for Ottawa. However, there may be an advantage to installing readers capable of reading B and/or C type cards (as well as the MIFARE cards) to maintain flexibility in the future. While STO uses 8K cards, they are available with up to 32K in memory today. We have not identified any applications within the city that would require more than 8K, even if all were combined on one card, however, there is the potential to issue cards with more memory to retain flexibility in the future and still retain compatibility with STO.

3.4.3 Combo

There are various “ Combo” cards available. The classic card combines contactless and contact interfaces on one card. While the cards are more expensive, this would allow, for example, a MIFARE compatible contactless interface to be combined on a card with a contact interface that would be suitable for interface with bank machines, vending machines and parking meters. This would expand the possible uses of the card in the future, whether by allowing recharging at bank machines (at some point in the future), use in parking meters (but not until the heads are changed), library printers and photocopiers (once the associated readers are changed), as a university student card or even as a general purpose cash card that any vendor could choose to accept. A second combination to consider would combine a MIFARE contactless interface with a Proxy contactless interface. That would result in one card that serve as a bus pass and also activate the currently installed readers for the city security system. That would minimize the investment required to use the card for recreation purposes, which are largely tied to controlling access to city facilities. The same card could be issued to city employees who use transit, combining the employee ID and bus pass (as well as recreation uses) on one card. While manufacturers suggest they provide products that meet these “ combo” needs, some testing will be required to ensure they work in the local context, on the city security system and on the STO system.

As most of these combined solutions are some time in the future and the bus cards would likely have a five year issuance period (suggested to keep pictures current, not due to card limitations) it may be appropriate to seek a “ family” of cards as follows:

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�� A simple MIFARE card for use on transit;

� A combination MIFARE/Proxy card for issuance to recreation users and city employees (as and when replacements are required, or when employees seek a bus pass);

� A combination MIFARE/contact card for issuance as student cards if partnerships are arranged, and perhaps for general issuance in the future if other uses develop that warrant it; and

� A cheap – paper based MIFARE card to serve as one-use pre-loaded tickets/day or week passes.

3.4.4 Other Approaches

There are some other approaches that are worth considering, such as the iClass being marketed by HID as the next generation for the building security solution. A firm decision should not be made on the technology until discussions with STO are concluded. While a MIFARE solution would be the simplest approach to ensuring compatibility between the systems, there may be approaches using combo cards of other types, or converting some components on the STO buses to a new system that would provide some advantages. Rather than specify a specific technology, we have suggested a set of criteria for a technology solution, knowing that there is at least one good fit to the criteria and possibly others. As discussions with STO progress, these criteria can be refined if necessary, and used as the basis of a suitable purchasing process.

3.4.5 City of Ottawa SmartBus Technology

OC Transpo is implementing a SmartBus system in all Transit vehicles. This is comprised of a Mobile Data Terminal (MDT) with a built-in Global Positioning System, text messaging, and available USB and serial ports for external devices. It communicates with OC Transpo applications using Bell Canada’ s 1XRTT cellular data network. Whilst smart cards are not part of the initial SmartBus deployment, City staff and Bell Canada have researched the possibility of integrating the required readers and software with the SmartBus system. Initial results confirm the MDT is readily adaptable to smart cards, due to the use of industry standard hardware and software, combined with the Intelligent Transportation Systems architecture. By reusing this existing system, the cost per vehicle of implementing smart cards is estimated to drop from $6k to $2k, greatly reducing the initial capital requirements. Indeed, without the existing SmartBus, implementation costs increase the payback period to a point where such a project is only marginally viable. There is an increase of about $500k in software development to provide this integration, but this is more than offset by the per-vehicle cost savings mentioned above.

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��3.4.6 STO Technology

There are many references in this document to the smart card system used by STO in the City of Gatineau. It is vital that the City of Ottawa/OC Transpo smart card system be “ compatible” with STO, but the level of “ integration” and “ technology sharing” must be carefully considered.

The STO system is approximately six to eight years old, and at least one, possibly two generations behind current technology. A great deal of custom development has been used, there is no wireless capability, and all data transfers are carried out by infra-red systems. Updates to the on-board fare devices are slow, with special measures in place to process all fleet vehicles during the short timeframes around fare changes. STO has learned a great deal about smart cards during their lengthy implementation, and would be open to system improvements that addressed these issues.

That being said, STO has developed a reliable solution that meets their needs with some future expansion capability. The City should work with STO in implementing any smart card system to take advantage of their experience and any elements of their current system that would make a cost-effective solution for Ottawa. To the extent Ottawa selects a system that is not directly compatible with the existing STO system, the project should consider the changes to the STO system that would be required to ensure compatibility. The two systems must be “ compatible” , i.e. have the ability to read and validate each others cards, and exchange financial information between their respective back-office clearing house systems.

3.5 Recommended Strategy

There are some advantages to developing a multi-application “ city card” that would give clients and customers a single card that could handle many different transactions with the city – an extension of the Client Service Centre concept. These advantages include improved customer convenience, opportunities for economies of scale, cross-marketing opportunities between services, and creating a reason for most residents to acquire a card, which then gives them access to all the other services. However, various programs in the city already have an investment in program-specific solutions that respond to most of their requirements – none of which is technically capable of playing the “ city card” role. The recommended strategy recognizes the long-term benefits of moving towards a city card, but minimizes risks and maximizes benefits by focusing first on the applications with clear incremental benefits, while building the flexibility for a comprehensive solution in the long-term.

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��3.5.1 Base Case

The first step is to implement a smart card fare payment system for public transit. The financial benefits are clear, and there are substantial benefits beyond those quantifiable financially. The benefits include:

� Increased convenience for customers:

– The option for a direct debit monthly bus pass, with no requirement to purchase a pass each month.

– Easier transfers to and from STO buses. Particularly as STO implements the e-purse capabilities of its smart card, OC Transpo riders will have more difficulty transferring to or starting rides on STO, and STO customers will be required to use dual systems (smart card and paper receipts) to access OC Transpo buses.

– An opportunity to build constructive, mutually beneficial partnerships with educational institutions.

� Financial benefits for OC Transpo (and taxpayers):

– Substantial reductions in fraud levels and future potential for fraud.

– Reduced costs of printing and distributing monthly passes and tickets

– Improved transit effectiveness: Simplified fare collection roles for Operators, allowing better fare enforcement and more focus on other duties. The potential for higher ridership through wider use of the “ Ecopass” type solution, without incurring the additional costs required for a manual, mail out type solution. It also allows cards to be blacklisted, for example, deactivating Ecopass cards when their owners leave their employer or otherwise stop paying their monthly fee.

– The ability to tailor fares to rider and system needs, whether for effectiveness or increased ridership, using approaches such as fare by distance, fare by time of day or day of week, special fares for events, etc.

– Better information allowing pass pricing to more accurately reflect use, inter-agency pricing (e.g. STO) to reflect actual use data, and allowing analysis of transfer patterns.

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��– A way to enable tickets to be accepted for O-Train use, and for controlled access at some

light rail stations, reducing the need for fare inspection There are reasons to defer many other applications, as discussed below, but there would be advantages, particularly to customers, in combining a range of applications in the future. With this in mind, the transit fare payment application should be developed in a manner that is consistent with adding other applications as warranted. This will require selecting technologies that have the flexibility to meet the needs of other services.

3.5.2 Short-Term Options to Explore

The other pressing need relates to recreation services. People Services is currently developing a facility that is intended to operate completely through controlled access. Clients will purchase the right to use various aspects of the facility and will be given a card that opens the appropriate doors at the appropriate times, depending upon what they have purchased. The intent is to issue cards compatible with the city’ s security system, and program users into the security system manually, granting the required rights. While this is a workable solution on a trial basis, it would be more efficiently implemented by building a bridge between the CLASS system, which is used to register clients for recreation programs (and to book meeting halls and rooms), and the CardKey software, which manages the facility access system.

3.5.3 Recommendations – Smart Card Strategy


2. That the technology for the transit fare smart card system be selected with a view to:

a. Compatibility with STO;

b. Capability for multi-application use over time;

c. Flexibility to accommodate changes in requirements in the future (card readers with multiple capabilities); and

d. The availability of a family of related products, such as combination cards (contact and contactless, contactless and Proxy, less expensive and more capable versions, paper based single use versions, etc.).

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��3. That the integration of CLASS and the Security System back-office be explored at an

early stage to accommodate controlled access to recreation facilities and programs.

4. That the potential to integrate the security system, parking meter payment and parking lot control, the Library system and other possible uses onto the multi-application card be considered when new investments are required to expand capability or replace existing infrastructure.

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��4 The Base Case Business Case

The previous sections of this report have outlined the most appropriate model of a smart card application to take in the City of Ottawa. The “ base case” identified is a transit fare payment system, with potential enhancements that can each be further explored as noted. This section examines the business case for this “ base case” in order to determine whether this model is worth pursuing at this time. The business case in based upon examining the specific benefits that could be achieved, and to the extent possible the alternative approaches available to achieve those benefits.

The business case looks at the expected costs and benefits of a transit smart card application in Ottawa. The business case assumes:

� One year is required to install the system hardware and software.

� Use of the smart card as bus passes is introduced first, with paper bus passes eliminated after two years.

� Use of the smart card as bus tickets is introduced in the second year and paper tickets eliminated after the third year.

� The personal Ecopass will be introduced in the first year and be used by 25% of pass holders by the fourth year and in subsequent years.

� Inflation is assumed to be 2% per year, and ridership is expected to grow at 3% a year for the first two years and 5% a year thereafter to meet Official Plan goals (other rates of inflation and growth are modeled in the sensitivity analysis).

4.1 No Smart Card Comparison

OC Transpo currently offers the “ Ecopass” to riders, but only those employed by participating employers. The program provides a 15% discount on standard monthly pass prices for riders who agree to participate for at least one year. Payments are made by payroll deduction, with employers submitting the required funds to OC Transpo and accepting responsibility to retrieve the Ecopass cards when employees leave. The cards are actually issued at OC Transpo Sales and Information Centres.

The Ecopass program appears to have increased ridership in that early surveys of program participants indicate that 3% of Ecopass participants were previously not bus users. It is also expected that the program has increased ridership in traditional holiday periods (December, June,

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��July, August) by ensuring participants have a pass for all months of the year, rather than foregoing the pass in months they do not expect to work a full month, and using alternative approaches those days they do work.

However, as noted, the Ecopass program is dependent upon the participation of employers, and is really only a practical option for larger employers. Making an Ecopass-like program available to all residents would improve fairness and equity to all clients and taxpayers, and should lead to a further increase in ridership. For example, if 25,000 people participated in a “ personal Ecopass” program, and 3% of them were new to public transit, the result would be 750 new riders or approximately 1,500 new transit trips per weekday (approximately a 0.5% increase in total ridership). With a smart card system, those wishing to participate would simply indicate their desire to participate and provide a debit or credit card authorization to be charged monthly. In the event the charges were ever refused, or the person chose to leave the program, the system could be alerted to refuse to accept the card.

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��

4.2 Smart Card System Financial Considerations

This section discusses the key financial considerations employed in determining the costs and benefits of a smart card system for OC Transpo. Appendix A provides a more detailed list of calculation assumptions.

4.2.1 Capital and One-time Costs

The major costs involved in setting up a smart card system are:

� The cost of the new on-bus hardware, including the card reader, and wireless LAN connection. These components would connect to the existing “ smart bus” components and would costs $2,000 per bus.

� Card issuance. Most cards will be issued in the normal course of business, to students as they are each year, or to adults through the sales and info centres. However, it would be useful to conduct some outreach with special set ups at major pass sales locations, senior citizens homes and special events in order to issue cards to as many people as possible over a two year period in order to shorten the phase-in period. $200,000 has been budgeted for this purpose, including additional card issuance hardware that could be positioned at the city Client Service centres permanently.

� Portable card readers required to enable inspectors to verify payment on POP vehicles. 30 units have been budgeted at $1,000 per unit.

� It has been conservatively assumed that all 300 monthly pass and ticket vendors will be equipped to revalue smart cards with the installation of machines costing $1,700 each. No growth in the total number is expected given the anticipated use of the personal Ecopass.

� Back Office Hardware and Software. This refers to the computer programs that will manage the smart card system. A new stand-alone system would be expected to cost $700,000. $500,000 has also been budgeted to develop the drivers and other software required to integrate smart card hardware with the GPS system.

� Wireless base stations at each bus garage will exchange information with each bus at the end of the day and could cost up to $150,000 to equip five locations.

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�� Marketing, training and all other soft costs are estimated at $1,200,000 for the initial launch

with a small ongoing allowance to promote pass use and provide notice of the elimination of paper passes in the early years, and do the same with ticket/purse use in later years as the use of passes and tickets is phased out.

� A Contingency of 15% has been allowed on all one-time costs.

A 33% provincial subsidy of capital costs is expected, based on existing programs and the provincial participation in Greater Toronto smart card project. The project has been evaluated both with and without this support.

Overall the initial set-up costs will be approximately $6 million, with some additional costs over the ten years to equip new buses as the fleet expands.

4.2.2 Operating Implications

The ongoing, incremental operating costs of the smart card system have been estimated at 20% of system costs, or about $750,000 per year. An additional $50,000 per year has been budgeted for equipment maintenance. The cards are estimated to cost $3.64 based on quote from a potential supplier.

There are a number of areas where savings will be achieved. These savings will generally be phased in, recognizing that paper passes will continue in use for two years after the system is in place, and paper tickets will be in place for three years after start-up. The figures given below are in 2003 dollars, but will not be fully realized until the system matures (see Appendix A for detailed schedules).

� The cost of printing tickets and passes ($215,000 per year).

� The cost of printing the current ID cards ($1.20 per card).

� Personal Ecopass impacts, including reduced commissions to vendors, reduced costs of the Sales and Info Centres, partially offset by the cost of debit charges for processing debit payments.

� Reduce cost of vendor service network by $150,000 (38%) once the system is mature, recognizing fewer trips to service vendors as no monthly passes or tickets must be distributed, and invoicing can be centralized.

� Reduce fare avoidance and fraud – in particular, the use of invalid transfers, sharing of monthly passes and use of counterfeit tickets, passes and transfers – estimated value of 1.0%

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��of revenues ($1,000K per year). This figure could be much higher and the issue is discussed at greater length below.

� Advertising revenue – The city has been able to achieve revenues as high as $5 for placing advertising on the parking meter cards currently in use. The potential returns from the smart cards have been conservatively estimated at $1 per card.

4.2.2.1 Estimating Fare Avoidance and Fraud Savings

An examination of the fare evasion and fraud experience of other systems provided some interesting observations, although the findings illustrate the need to consider local conditions. As noted earlier, pure POP systems in Europe can have levels of fare evasion as high as 10% to 15%. However, relatively few systems produce regular accurate reports of their fare evasion and fraud experience, especially in a system that combines high usage of monthly passes, relatively low use of cash and a POP system on selected services.

OC Transpo does have a fare inspection program. It makes use of Security staff who are part of special ‘walk and ride teams’ having responsibility for general security as well as performing fare inspection. Up to six teams, each made up of two staff members, check passengers on articulated buses and the O-Train to make sure passengers paid their fare and have proof of payment. This proof can take the form of a valid pass, transfer or an O-Train ticket. It is estimated that overall fraud rates on the POP routes are in the 2% range. The best fare evasion data available comes from Toronto but this has limited value in looking at the Ottawa experience. Toronto has a subway that operates with controlled access points (turnstiles). The only POP operation in Toronto is on the Queen St. streetcar line that allows rear door boardings. Toronto has carried out internal audit reviews as part of aggressive fare enforcement campaigns since 1994 with the following findings:

� Total fare evasion is in the 1.1% to 1.3% range (total of $1.1 to $1.3 million in Ottawa if rates were the same). This is down significantly from 1994 (2%), reflecting a strong commitment of TTC to address the issue.

� Two biggest fraud categories are:

– Invalid Transfers (55% of total) – 2% of transfers used were found to be invalid (verses almost 6% in 1994). In Ottawa, transfer fraud has been greatly reduced since electronic transfer printers were implemented in 1998. Transfer fraud is not viewed to be a big problem.

– Unacceptable Passes (29% of total) – Unacceptable passes were used by .9% of adults and 4% of students. “ Unacceptable” passes include using someone else’ s, wrong photo

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��ID used, student pass use by non-student, etc.. The rate of pass abuse was 50% higher in 1994, declined dramatically through 1998 but has been increasing since. Given the high rate of pass use in Ottawa, this type of fraud is important.

– In addition, 29% of passes did not have the numbers inscribed on the monthly portion, leaving open the potential that some portion of these passes are swapped with other ID holders. No estimate of actual losses was provided, but this is also likely a factor in Ottawa with extensive pass use.

� POP abuse was found to be small (5% of total fraud) because of the limited use of POP in Toronto (just Queen Street streetcars). However, 13.6% of those passengers who entered POP vehicles by the middle or rear doors did so without proper proof of payment, representing 2% of total passengers on the POP vehicles inspected, even after months of intensive fare enforcement. POP fare evasion was twice as high in the late 1990s, indicating enforcement efforts have reduced fraud rates. Smart cards will not address rear door entry POP abuse, but will allow automated fare verification at stations, an important factor as light rail is expanded in Ottawa.

The biggest fraud category in Toronto, use of invalid transfers, could be substantially reduced with a smart card system. For those cash and ticket customers who choose to use a smart card for fare payment, card readers would effectively catch invalid use of transfers, a task that is difficult for Operators given the volumes boarding the bus and range of fare media to inspect. However, the availability of transfers from unmanned “ spitters” in the Toronto subway system makes transfer fraud easier than it is in Ottawa. Transfer fraud in Ottawa is a much smaller issue than in Toronto due to the fact that all OC Transpo buses are equipped with electronic transfer printers that clearly print the date, time and unique code for that day on transfers. In Ottawa, the impact of the smart card on reducing transfer fraud would be less than in Toronto.

A smart card system would have some impact on abuse of passes. It would still rely on the Operator to verify the picture and ensure individuals only used their own passes, but that would be the only requirement on Operators (no need to check dates, numbers) so they could devote more attention to that task. The Toronto study noted that over a quarter of pass users do not enter their numbers on the monthly pass – but was unable to determine how much actual fraud occurred as there was no way of determining whether each monthly pass had actually been used by more than one individual. A smart card system would effectively prevent the pass swapping that is possible (but not quantified) with monthly passes having no ID number inscribed. A smart card system would not impact POP abuse through rear door boarding unless combined with other measures (such as rear door turnstiles).

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��Counterfeiting was not found to be a significant issue at the time of the study, although it is a problem that tends to come in waves. Counterfeiting of tickets and monthly passes would essentially be eliminated by the mature smart card system.

Ottawa also faces some particular challenges related to fraud in the coming years:

� The employer based Ecopass system relies upon the employer retrieving the Ecopass when an employee leaves. However, retrieving the Ecopass is unlikely to be the employer’ s highest priority, particularly in the circumstance of involuntary separation. If the Ecopass is not recovered by the employer (“ I lost it” ), there is no way to prevent its use before the expiry date (up to two years) – and even then it is dependent upon the Operator checking the expiry date. Up to 3% of Ecopasses issued and no longer being paid for are unrecovered – and potentially still being used. If the Ecopass were in general circulation among JDS and Nortel employees over the last couple of years for example, this could have become a serious problem.

� The STO smart card system is the only pass system in use on STO (no paper passes), and will likely replace tickets over the next year or two. OC Transpo operators are currently requiring STO pass holder to show both the pass as an ID card and the receipt, which indicates the pass, was updated for this month. The receipts are liable to degradation over a month and become very difficult to examine. Soon passengers will get receipts for putting cash on their cards (rather than monthly passes) making it more difficult to confirm the validity. In addition, the receipts are very easy to produce (virtually any home computer) so any effort to commit pre-planned fraud by carrying an old STO identification and homemade receipt will be very easy (and not limited to Outaouais residents). This concern could be addressed by issuing hand-held card readers to Supervisors and Security staff involved in fare inspection although most inspection activities are focused on POP buses, and STO cards could be used on any bus. Thus, additional fare inspection activities would be required over time. Similar card readers could be put on all buses ($2-3 million) simply to read STO cards, but at that point it would seem to make more sense to implement a full system.

� OC Transpo employee ID cards, issued to retirees as well as current employees, and valid as bus fare are simply colour printing on a piece of plastic and would be very easy to duplicate. Not known to be a common form of fraud at the moment, but it could become one if known.

� Monthly passes have a number of security features to prevent fraud including provisions to make it difficult to photocopy passes, changing colours each month and strategic layout of content to assist operating staff in quickly identifying fraudulent passes. However, there are still opportunities for pass fraud. Tickets have no significant security features on them and are relatively easy to reproduce with readily available technology (home computers and appropriate paper stock). The monthly passes have changing stock each month, so

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��counterfeiting of tickets would be much simpler. The extent of current counterfeiting is not known, but not thought to be significant.

� Fare verification on the new light rail systems is a particular challenge. As noted earlier, if an entirely POP system is used, fare evasion rates will likely be high. Fare verification without an automated system would largely depend upon human interaction, at station entrances, and/or with on-vehicle fare inspectors – both expensive options.

A smart card system would deal with all these issues effectively.

Curtailing abuse of transfers would reduce fraud equivalent to 0.66% of revenues in Toronto, already low after considerable efforts to curtail fraud over eight years. There are factors, which suggest this figure could be higher in Ottawa (no eight year fare enforcement campaign) or lower in Ottawa (printed transfers with large date, no “ spitters” ). Transfer fraud savings would be quite different than Toronto. As previously stated, Toronto’ s transfer printer system is primitive compared to Ottawa’ s and has very few features to control fraudulent use. Monthly pass abuse (wrong pass, wrong pass type) costs about .35% of revenues in Toronto, and some unquantified amount is lost due to pass swapping, all problems that are likely more severe in Ottawa (they were twice as big a problem when the fare campaign began). In addition, Ottawa has the exposure to counterfeit issues, and the Ecopass and STO smart card abuse issues. Based on these issues, a smart card system could be expected to save anywhere from 0.5% to 1.5% of revenues in Ottawa, or $500,000 to $1,500,000 based on 2002 revenues. The business case is built on the mid-point assumption of $1,000,000 per year in fraud savings (increasing with ridership growth and inflation).

No provision has been included in the business case related to the expansion of light rail. However it should be noted that fraud losses will expand considerably if there is no fare verification system, whether through controlling access to stations or expanding fare inspection on vehicles.

4.2.2.2 Other Revenues

Advertising revenue has been estimated at $1 per card issued. It is assumed free photo ID cards will be distributed to all current photo ID holders for use as monthly passes. For ticket users, it is also assumed they will be given a choice of a one-time, free card without a photo, or a new card with photo ID, issued at the current cost of $6 per photo ID. It is assumed 40% would choose to purchase the photo ID version in order to have the flexibility to use it as a pass some months of the year, and the potential to recover lost or stolen cards. For new pass holders over time, no revenue is shown, as it is assumed the current fee for issuing an ID would remain the same, so there would be no incremental effect.

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��4.3 Other Considerations

There are a number of other issues related to a smart card system, which should be considered in deciding when or whether to implement a system, but they are not factors that can be properly quantified and incorporated into the financial analysis.

4.3.1 New fare options

The smart card will introduce new flexibility in designing and implementing new fare approaches, incentives, and price changes. In addition to the Ecopass which is discussed above, the following types of approaches will be possible – although not necessarily all desirable.

� Summer student passes – Many students, particularly secondary school students purchase bus passes through the school year, but do not purchase them in the summer months. STO has responded with a discounted July/August pass that has been very well received. A similar approach would be worth considering in Ottawa. Implementing the program without a smart card would simply require issuing a new type of paper pass, perhaps half in the colour of the July pass, half in the colour of the August pass. The costs would be modest, but it would contribute to the multiple pass types that drivers are required to verify.

� A semester-based post secondary pass - This approach would offer students a bus pass for a four month period, with an appropriate discount.

� Fare by distance/zone – This approach would involve establishing higher fares for longer trips, whether by measuring the actual distance travelled, or by increasing fares for travel between pre-defined zones. It may become attractive at some point as the city continues to grow. With a smart card system it would require installation of readers at the exit doors in order to allow passengers to record both the beginning and end of a trip. Without a smart cards system, it would have to rely on voluntary compliance, or be very constrained in implementation mode (e.g. based on the bus boarded rather than the actual distance travelled) or rely on extensive Operator involvement that would severely restrict passenger alighting.

� Fare by time of Day – This concept would attempt to shift travel demand to lower volume periods of day. Previous experience suggested implementation without a smart card system leads to significant disputes between passengers and Operators. A smart card system would have some impact on this concern, but disputes related to buses running early or late would likely continue.

� Weekend pass or weekend discount – Differential pricing on weekends could encourage more ridership in this period. A smart card system could implement virtually any approach desired. Without a smart card system the simplest approach would be to reduce the number

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��of tickets required. Any other approach would require issuing new tickets and/or passes complicating the ticket and/or pass distribution system and the Operator fare verification process.

� Annual pass for adults – OC Transpo offers an annual pass for students, and all annual passes start in September and run until August, when new passes are issued with a different look. Adults would tend to purchase annual passes randomly through the year, so expiry could only be shown as a date to be checked by the Operator. Given this concern, no annual passes for adults have been issued. A smart card system would allow annual passes to be sold at any time, with the expiry date recoded on the card, and checked by the card reader.

� Unlimited use (transferable) 1 day, 7 day and 30 day passes – activated on the first date of use (currently used by 30% of New York riders). For longer term passes (30 day) really an issue of whether to make passes transferable or not (OC Transpo continues to support non-transferable passes in order to reduce the cost of the pass)– but shorter term unlimited use passes would provide a new fare option. Could be implemented without smart cards, but would complicate fare distribution and validation process.

� Park-and-ride charges – OC Transpo has begun offering some “ Gold Pass” paid parking in park and ride lots. The system is currently administered by monthly mail-out, which is expensive. Enforcement is essentially by honour system, with manual inspection and ticketing as required. Smart cards would allow flexibility in charging when and where desired for use of park and ride, whether for access only to reserved or all spots, in some or all locations. Smart cards would accommodate gate control, reducing/eliminating need for manual enforcement.

4.3.2 STO Compatibility

Compatibility with STO is an important consideration. If the goal is to improve and expand transit use in Ottawa, the best solution is an entirely seamless system, where the difference in jurisdictions never interferes with a passenger’ s travel patterns, and never provides a disincentive to use public transit. This is the rationale behind the provincial government’ s efforts to develop a smart card system among transit systems in the Greater Toronto Area.

With STO operating a smart card system, OC Transpo has adopted some inconvenient practices to allow it to monitor fare collection, such as requiring smart card users to produce a receipt demonstrating their smart card has been revalued for the current month. This will become more difficult as STO implements its e-purse system. A passenger transferring from STO can be given a transfer to show to the OC Transpo operator. However, they will also need to carry OC Transpo tickets to pay for the return trip as the operator will be unable to accept payment from the smart card.

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��At one time a single fare payment was accepted as passage on both systems. This has fallen off a bit, with STO requiring a small additional payment from transferring passengers. Suspicion on an unequal burden has always made discussions about transfers difficult. Implementing a smart card system in Ottawa will not only provide the technical capability to accommodate seamless transfers, but will also provide an information base to inform such discussions and pricing decisions.

4.3.3 Planning Information

A smart card system will provide valuable information to assist in making pricing decisions. The system will have complete knowledge of all trips made by pass holders and will be able to report average trip making rates by type of pass. This will allow for more strategic pricing of the different types of passes as, over time, the relationship between fare increase and ridership loss (price elasticity) will be better understood. As well, information on ticket use will be known once paper tickets are discontinued. The only portion of rides not known to the system will be trips paid for by cash. As well, it will be possible to know who is making these trips (seniors, students, children). This information would be particularly useful for pricing decisions (do seniors really travel at off-peak times when buses have capacity?).

OC Transpo already has good information on where people board buses and where they alight, but has relatively little information on linked trips (trips using more than one bus). This information could be useful in considering the impact of route changes on the need to transfer.

4.3.4 Operator Convenience/Effectiveness

Bus operators currently must inspect an incredible range of fare types. In addition to ensuring the correct amount of cash, the right number of tickets (making sure they haven’ t been sliced in half), the validity and time shown on transfers (from OC Transpo and STO), they must look at student passes (regular, express, rural express), adult passes (regular, express, rural express), senior passes, day passes, Ecopasses (regular, express, rural express), CNIB passes, OC Transpo employee IDs, and most of the same types of passes issued by STO (currently in both paper and smart card formats), and the receipts that accompany the smart card versions. The operator must confirm the picture represents the individual using the pass, the pass and picture ID have the same number written on them, and that the pass or transfer is valid on the date concerned – all without delaying boarding so the schedule can be maintained. The effectiveness of the operator in achieving this is the main line of defence against use of the transit services without payment. Operators vary in their orientation to the task. Some take fare inspection very seriously, which can lead to delays in boarding and schedule issues. Others find the task exceedingly difficult, if not impossible, especially at peak times and make very little effort to detect fraud. The

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��implementation of a smart card system will make effective fare enforcement much easier. For those using the card the Operator will only have to confirm the validity of the photo. The card reader will be able to determine whether the pass (or cash payment, or transfer following an initial cash payment) is valid and up-to-date. This will result in improved fare enforcement – but it will also allow operators to devote more time and attention to safely operating the bus and providing effective customer relations.

4.3.5 Customer Convenience

The most substantial customer convenience will come from the introduction of the personal Ecopass, removing the need for customers to go anywhere to buy a pass each month. Those who have stood in line at the Customer Service Centres at month end will appreciate the value this will provide. Subsequent enhancements could allow purchasing passes or reloading cash on a card over the internet (the card is updated next time it is used) or at vending machines at key Transitway stations. The adoption of multiple applications on the card over time will further enhance the customer convenience.

4.3.6 Light rail

The impact of light rail expansion is discussed earlier in this report. A controlled access fare collection system would only be feasible with a machine-readable fare medium, such as a smart card. A POP system would rely on expanded fare inspection services, which again would benefit from the clear verification options and information captured on a smart card. Vending machines to sell single or multiple use smart card tickets would accommodate those wishing to pay cash.

4.3.7 Fare Boxes

The acceptance of cash adds approximately $1,000,000 per year to OC Transpo operating costs (dumping fare boxes, counting and depositing cash and related security). OC Transpo currently has about 12% of its receipts as cash, representing perhaps 5% to 8% of rides. This is much lower than most other properties, reflecting the effects of the “ deep discount” tickets in particular. The ratio between the ticket and cash price is probably the most important factor in the amount of cash collected. However, there are also changes in how cash is used in society as a whole, with increased use of credit cards and now debit cards to replace cash purchases. The credit and debit card providers are working towards their own smart card solutions to better accommodate “ low value” purchases, which are not well handled now due to the need to verify the payment validity, and the time and cost of doing so. Over time, they will evolve solutions, such as card-based purses (Octopus in Hong Kong is perhaps the best example to date) that will

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��be widely used. It is likely that within five years such systems will be in place and gaining wider and wider use. It is unlikely, however, that cash will be phased out as a means of payment in most commercial establishments within a ten year timeframe, or that purse based cards will be so entrenched that all possible bus users can be expected to have them. Thus, we would conclude that it is unlikely OC Transpo will be able to eliminate the acceptance of cash within a ten year timeframe without causing significant inconvenience to a significant portion of the population – and losing some material number of riders, although certainly it would be easier with a smart card system than without.

As a secondary question, is it possible that the smart card system would extend the life of the existing fareboxes and systems? The MTO studies in Toronto do suggest a reduction in the use of cash from introduction of smart cards, although they examined systems with much greater cash use that Ottawa. Aggressive promotion of the smart card could have similar impacts in Ottawa, but pricing related to the cost of fares paid with cash compared to those paid with the cards will have significant impact. The wear and tear on fareboxes is also caused by the use of tickets and the periodic ‘ticket jams’ that occur. A mature smart card system will see the elimination of paper tickets and hence less stress on fareboxes. Most of the operating costs related to cash management are system related rather than volume related (the cost is the same to dump a farebox regardless of the amount of cash), so the impact on operating costs would not be significant. However, the wear and tear on fare box components is more related to the number of times it is dumped than the weight of the cash. Reducing the amount of cash so that fareboxes can be dumped every two or three days may extend the life of the current equipment. It is possible that introducing the smart card will accelerate the general trends towards use of cash substitutes, and gradually reduce the use of cash on buses if aggressively promoted, helping create an environment in which OC Transpo could go “ cashless” rather than replace its fareboxes in say ten years, but it is far more likely introduction of smart cards would allow replacement of the fare boxes with an inexpensive model, rather than the sophisticated models that count cash, provide change and verify bills and transfers.

OC Transpo fareboxes may require replacement in five to ten years. Solutions could range from $2,000,000 to $10,000,000 depending upon the type of farebox selected (around $2,000 for a mechanical farebox, like the existing, through to registering fareboxes that verify and count coins and bills and “ read” transfers, starting at $10,000 per unit). If the smart card system helped extend the life of the current fareboxes by reducing cash collections, this could be a significant impact. More importantly, the smart card system should ensure that the replacement farebox can be a simple mechanical model rather than the more expensive registering systems. Note that the difference in cost between a mechanical system and a registering system is greater than the entire cost of the smart card system.

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��4.3.8 Loss Protection For Vendors Selling OC Transpo Passes and Tickets

Currently, losses of OC Transpo tickets and monthly passes that result from negligence or robbery are losses that are sustained by retailers at the face value of the OC Transpo fare instruments unaccounted for. These losses cause hardship for retailers, Often, such situations involve the City having to write off sizable portions of its accounts receivable as bad debt. It should be noted that formally authorized retailers selling OC Transpo fare instruments only receive a 1% commission on sales, which does not necessarily justify the risk of loss they are assuming.

The introduction of smart cards, and the widening of the Ecopass offering through bank debit, will lower the overall commission paid to retailers, which currently is in excess of $ 650,000. In addition, smart cards will eliminate the risk associated with carrying ticket and pass inventory by retailers who will merely carry smart card value loading devices, for value amounts on the smart cards paid for by cash, debit or credit cards.

4.4 Business Case Summary

The table below provides a summary of the business case findings, with and without provincial subsidy. The detailed calculations are provided on the following page.

Summary of Financial Implications Before Provincial Subsidy

With Provincial Subsidy

Capital and One-time Costs (net of subsidy)

$7,607,000 $5,745,000

Annual Impact at Maturity (Based on Year 6)

Operating Costs $1,018,000 $1,018,000 Operating Savings ($783,000) ($783,000) Revenue Enhancement ($1,484,000) ($1,484,000) Total Annual Impact ($1,249,000) ($1,249,000) Return on Investment 17.3% 23.3% Net Present Value (10 years) $630,000 2,471,000 Years to Payback Investment 8 years 7 years

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��

One-time capital costs, including system installation in new buses over the ten years, will be under $8 million, with the potential to recover $1.8 million through provincial subsidy. Once the system is mature, it will cost $1 million per year to operate, but result in operating savings of $0.75 million and improved revenue of almost $1.5 million. This provides an ongoing return of 17.3% on the funds invested (to year 6). The net present value calculated over the ten-year period is $.63 million, $2.5 million if the potential provincial subsidy is considered. It will take eight years to recover all the capital funds invested because the full benefits are not realized in the first three years as the system is phased in. However, the $1.2 million in annual savings will continue, and grow, past the ten-year timeframe.

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�� Detailed Financial Forecast, Smart Card Implementation

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

RevenuesFraud Savings $0 $262,650 $883,008 $1,063,915 $1,202,755 $1,355,949Advertising Revenue $0 $57,650 $78,923 $51,788 $50,510 $16,205Card Issuance Fees $0 $0 $74,179 $111,612 $107,910 $24,912

Total $0 $320,300 $1,036,111 $1,227,315 $1,361,175 $1,397,066

Capital CostsCost of On-Bus Equipment ($1,848,000) ($46,920) ($52,020) ($33,959) $0 ($77,286)Card Issuance (equip+people) ($50,000) ($100,000) ($50,000) $0 $0 $0Portable Card Readers ($30,000) $0 $0 $0 $0 $0Vendor (revaluing) Machines ($510,000) $0 $0 $0 $0 $0Back Office HW+SW ($1,200,000) $0 $0 $0 $0 $0Wireless base stations ($150,000) $0 $0 $0 $0 $0Initial Smart Card Inventory $0 ($820,531)Marketing, Training, etc ($200,000) ($1,000,000) ($50,000) ($25,000) ($25,000) ($50,000)

Sub Total ($3,988,000) ($1,967,451) ($152,020) ($58,959) ($25,000) ($127,286)Contigency (15%) ($598,200) ($172,038) ($22,803) ($8,844) ($3,750) ($19,093)Provincial Subsidy $0 $0 $0

Total ($4,586,200) ($2,139,489) ($174,823) ($67,802) ($28,750) ($146,379)

Operating ExpensesPrinting

Student Passes $0 $57,977 $58,044 $59,388 $60,913 $65,238Adult Passes $0 $30,748 $107,830 $118,263 $129,351 $138,535Tickets $0 $0 $23,275 $59,462 $95,878 $106,091Student ID Cards $0 $45,205 $44,371 $44,508 $44,755 $46,993Adult ID Cards $0 $23,975 $58,453 $6,203 $6,409 $4,752

Sales and Info Center $0 $11,730 $36,253 $51,031 $67,102 $71,8661% commision - Passes $0 $23,892 $73,840 $103,940 $136,674 $146,378Vendor Relations(distribution) $0 $0 $50,000 $153,000 $156,060 $159,181Debit Charges $0 ($4,620) ($13,999) ($19,319) ($24,904) ($26,150)Equipment Maintenance $0 ($50,000) ($51,000) ($52,020) ($53,060) ($54,122)Back Office Operation $0 ($757,600) ($772,752) ($788,207) ($803,971) ($820,051)Cost of Smart Cards $0 $0 $0 $0 ($228,919) ($106,413)

Total $0 ($618,692) ($385,684) ($263,751) ($413,712) ($267,701)

Total Cash Flow (Gain) ($4,586,200) ($2,437,881) $475,603 $895,761 $918,713 $982,986

Cumulative Cash Flow ($4,586,200) ($7,024,081) ($6,548,477) ($5,652,717) ($4,734,004) ($3,751,017)

10 Year Net Present Value 630,290

Year 6 Year 7 Year 8 Year 9 Year 10 Total

$1,452,221 $1,555,329 $1,665,757 $1,784,026 $1,910,691 $13,136,300$13,591 $14,254 $14,950 $15,682 $16,450 $330,005$17,941 $18,798 $19,698 $20,644 $21,639 $417,332

$1,483,753 $1,588,380 $1,700,405 $1,820,352 $1,948,780 $13,883,637

($69,822) ($87,300) ($79,673) ($81,266) ($85,330) ($2,461,575)$0 $0 $0 $0 $0 ($200,000)$0 $0 $0 $0 $0 ($30,000)$0 $0 $0 $0 $0 ($510,000)$0 $0 $0 $0 $0 ($1,200,000)$0 $0 $0 $0 $0 ($150,000)

($820,531)$0 $0 $0 $0 $0 ($1,350,000)

($69,822) ($87,300) ($79,673) ($81,266) ($85,330) ($6,722,106)($10,473) ($13,095) ($11,951) ($12,190) ($12,799) ($885,236)

$0

($80,295) ($100,395) ($91,624) ($93,456) ($98,129) ($7,607,342)

$69,870 $74,830 $80,143 $85,834 $91,928 $704,165$148,371 $158,906 $170,188 $182,271 $195,213 $1,379,678$114,306 $123,104 $132,527 $142,618 $153,425 $950,685$49,343 $51,810 $54,401 $57,121 $59,977 $498,483$4,990 $5,239 $5,501 $5,776 $6,065 $127,363

$76,968 $82,433 $88,286 $94,554 $101,268 $681,490$156,771 $167,901 $179,822 $192,590 $206,264 $1,388,071$162,365 $165,612 $168,924 $172,303 $175,749 $1,363,194($27,457) ($28,830) ($30,272) ($31,785) ($33,374) ($240,709)($55,204) ($56,308) ($57,434) ($58,583) ($59,755) ($547,486)

($836,452) ($853,181) ($870,244) ($887,649) ($905,402) ($8,295,509)($99,281) ($104,185) ($109,334) ($114,742) ($120,422) ($883,296)

($235,411) ($212,667) ($187,492) ($159,693) ($129,066) ($2,873,870)

$1,168,047 $1,275,318 $1,421,290 $1,567,202 $1,721,585 $3,402,425

($2,582,971) ($1,307,653) $113,637 $1,680,839 $3,402,425

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��

4.4 Sensitivity Analysis

The impact of changes in certain key assumptions was tested to determine the effect on the outcome of the business case. Each table compares the capital costs, the impact on operating costs and revenues in a typical year once the system has reached maturity (based on year 6) and the ten-year net present value that would be realized under each of the set of assumptions considered. In each case, the most likely scenario, as described on the previous pages, is shown in bold, while the other columns show the effects of changing key assumptions.

Sensitivity Analysis Comparing Inflation and Ridership Changes (Without Considering Provincial Subsidy)

Inflation Rate 2% 2% 4%Ridership Growth 3% 3%/5% 3%/5%

Capital Costs ($7,472,180) ($7,607,342) ($7,700,989)

Typical Operating Impact (Based on year 6)New Operating Costs ($992,724) ($1,018,394) ($1,109,307)Reduced/Eliminated Operating Costs $737,646 $782,983 $866,072Revenue Enhancement $1,363,800 $1,483,753 $1,663,200 Net Operating Impact $1,108,723 $1,248,342 $1,419,964

10-Year NPV ($240,826) $630,290 $1,771,832

The Official Plan calls for roughly 5% per year ridership growth, however, the current rate of growth is closer to 3%. If the 3% growth rate continued over the ten years (the first column) the capital costs would be marginally lower (slower growth in the fleet) but the savings would also be lower (due to lower costs and lower volumes). It would take longer than ten years to recover the investment,

If inflation increases to an average of 4% over the ten-year period, the capital costs would be marginally higher, but operating savings would increase, resulting in a higher ten-year net present value.

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��Sensitivity Analysis Comparing Levels of Fare Avoidance Savings

Capital Costs ($7,607,342) ($7,607,342) ($7,607,342)

Typical Operating Impact (Based on year 6)New Operating Costs ($1,018,394) ($1,018,394) ($1,018,394)Reduced/Eliminated Operating Costs $782,983 $782,983 $782,983Revenue Enhancement $757,642 $1,483,753 $2,209,863 Net Operating Impact $522,232 $1,248,342 $1,974,453

10-Year NPV ($4,200,459) $630,290 $5,461,039

The fare avoidance (fraud) savings were conservatively estimated at $1,000,000 per year, however, the data available to substantiate this estimate is soft, leaving the possibility the actual savings could significantly exceed this level, or could be less that this. If fraud savings are only half the level forecast, there would still be annual operating savings, but they would be more modest and the ten year net present value would be negative. If annual fraud savings are $500,000 per year higher than estimated, the annual savings would be larger, and the ten year net present value would be much higher.

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��5 Conclusions

A smart card system could provide substantial value to OC Transpo and its customers. In addition to some ongoing net operating cost reductions, it will support the introduction of a personal Ecopass system giving all passengers access to the convenience and savings that can now only be accessed by employees of participating employers Introducing the smart card system could provide this convenience and other benefits to passengers and the city while saving $630,000 over ten years. The availability of provincial subsidy for the capital costs will further enhance the financial return.

5.1 Recommendations

1. That a transit fare payment smart card be implemented in Ottawa.


3. That the technology for the transit fare technology system be selected with a view to:

a) Compatibility with STO;

b) Capability for multi-application use over time;

c) Flexibility to accommodate changes in requirements in the future (card readers with multiple capabilities); and

d) The availability of a family of related products, such as combination cards and single-use paper “ cards” .

4. That the integration of CLASS and the Security System back-office be explored to accommodate controlled access to recreation facilities and programs

5. That the potential to integrate parking meter payment and parking lot control, the Library system and other possible uses onto the multi-application card be considered as new investments are required to expand capability or replace existing infrastructure.

6. That the first steps towards developing the transit smart card be:

d) Negotiating with the STO the best approaches to ensure compatibility, interoperability and minimum cost.

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��e) Determining the implications of using the GPS hardware now being installed on the

buses as the foundation for the on-bus smart card system.

7. Subject to satisfactory outcomes from recommendation 5, the city proceed to:

f) Determine the interest of school boards and post secondary educational institutions participating in the smart card project.

g) Ensure the eligibility of the major investment items for provincial subsidy.

h) Establish firm pricing for the major system components.

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��Appendix 1 – Detailed List of Assumptions

This Appendix provides a detailed list of assumptions used in the calculation of the smart card system financial impact. The major assumptions are also discussed in the text. For the sensitivity analysis, the assumptions change as explained in the text.

System Use and Conversion Rates

� 99,600 passes are replaced with smart cards, 40% of total users are students, 3.5% Ecopass holders.

� All Student ID cards will be converted to smart cards in Year 1 (issued at usual student card charge).

� 25% of adult monthly passes and Ecopasses will be converted to smart cards in Year 1 (issued for no charge when old photo ID turned in).

� The remaining monthly passes and Ecopasses will be converted to smart cards in Year 2 (issued for no charge when old photo ID turned in).

� 5% of student pass holders will switch to the Personal Ecopass each year during Year 1 to Year 4.

� 105,000 ticket users (plus ridership growth) will switch to e-purse evenly over Year 2 to Year 4 (phasing out tickets at the end of Year 4). 40% will choose to pay $6 for photo and registered card, balance will receive one-time free card.

� 2% of cash users will switch to e-purse per year from Year 2 to Year10.

One-time and Capital Costs

� Cost of On-Bus hardware:

– $2,000 assuming integration with GPS system.

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��– Number of buses according to OC Transpo forecast, extrapolated for Year 9 and Year 10,

and adjusted for lower growth in alternative scenario.

Forecast Year Per Current Plans Assuming growth limited to 3% / year

0 924 924 1 947 947 2 972 972 3 988 988 4 988 988 5 1,023 1,010 6 1,054 1,035 7 1,092 1,065 8 1,126 1,085 9 1,160 1,115 10 1,195 1,150

� Additional staffing and equipment to support one-time early card issuance program estimated at $200,000 (over 3 years).

� 30 portable readers are suggested in support of fare inspection activities, at a cost of $1,000 per unit.

� 300 revaluing machines are estimated, assuming all current vendors are retained, at a cost of $1,700 per machine.

� Cost of Back Office Hardware and Software is estimated at $1,200,000 including the cost of new drivers and other software to accommodate the use of GPS components.

� 5 wireless base stations would be required, at a cost of $30,000 per site.

� Cost per smart card estimated at US$ 2.29 + 50c for printing = CDN$3.64 (based on quotation).

� Marketing, training and other soft implementation costs are estimated at $1,200,000 for the initial launch with $25,000 to $50,000 per year through to the final phase out of ticket sales.

� If available, provincial subsidy is assumed to be 33% of hardware, back office system costs and the initial supply of smart cards. No subsidy was assumed for ongoing purchases of smart cards, training, or marketing.

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�� Contingency – A 15% contingency is applied to all capital costs except the smart cards.

Operating Impacts

� Inflation is estimated at 2% per year. All numbers given below are shown in current dollars, but inflated 2% per year for future years.

� Fraud savings are estimated at $1,000,000 (current $s) based on current revenues, and are increased with inflation and ridership growth. They are phased in, based on expanded use of the system, as follows:

Forecast Year Fraud Savings 0 $0 1 $250,000 2 $800,000 3 $900,000 4 $950,000 5 $1,000,000

� Advertising revenue is estimated at $1.00 per smart card issued (one time revenue per card).

� Cost of printing passes per user per year: $1.51 + inflation, based on $145,000 spent printing passes divided by 96,100 users.

� Cost of printing tickets per user per year: $0.72 + inflation, based on $76,000 spent in printing tickets divided by 105,000 users.

� Photo ID card savings: $1.20 (represent the actual costs of printing each ID card). Student smart cards are assumed to be used an average of 3 years (but reprogrammed each year).

� Ecopass Related savings and costs are pro-rated between direct (Info Centre) and indirect (vendor) sales based on current sales ratio.

– 23% of sales through Info Centre and Sales Office and 77% of sales through vendors: Considering total annual revenue of $58.4M (passes)+$25.5M(tickets) and 1% commission paid of $650,000.

– Cost of maintaining Info Centre and Sales Office per monthly pass purchaser per year estimated at $10.00.

– Cost of vendor sales based on saving 1% commission.

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��– Cost of Ecopass monthly debit charges $.10.

� Operating costs are based on 20% of system capital costs.

� Max cost savings for vendor relations are 150K per year (out of $400,000), based on less frequent visits without monthly passes. Savings are phased in as follows:

Forecast Year Vendor Relations Savings

0 $0 1 $0 2 $50,000 3 $150,000

� Equipment maintenance costs are $50,000 per year, based on STO experience.

Net Present Value

� Net present value is based on a 5% discount rate.

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