Open vs Closed Loop Fare Collection - What Transit Systems Should Know

1. Open vs Closed Loop Fare Collection: What Transit Systems Should Know What Is a Closed-Loop Wallet?.............................................................................................1 What Is a Closed-Loop Card?...............................................................................................1 Key Differences at a Glance..................................................................................................2 Benefits Unique to Wallets....................................................................................................2 Advantages of Closed-Loop Cards...................................................................................... 3 When to Use Each..................................................................................................................3 Can You Use Both?................................................................................................................3 Final Thoughts....................................................................................................................... 3 Public transportation works best when it’s accessible and efficient for everyone. That means faster boarding, transparent pricing, and simple systems—both for passengers and transit authorities. This is where automated fare collection (AFC) becomes crucial. More than just replacing paper tickets, AFC systems support how people move through cities today. But here’s what you need to know: there are two key types—open-loop and closed-loop. While they share a goal, they function quite differently and solve different needs. In this blog, we’ll break down the basics of each, their differences, and how closed-loop systems can enhance the open-loop model. This guide is especially useful for transport operators aiming to modernize payment systems without losing control or flexibility. What Is Automated Fare Collection (AFC)? Automated fare collection refers to systems that digitally manage fare payments across public transit networks. These systems eliminate the need for manual ticket sales, physical tokens, or cash handling, replacing them with digital methods like smart cards, e-wallets, and tap-to-pay options. From subways to buses to ferries, many cities around the world have adopted AFC systems to make travel smoother and more efficient. AFC can be powered in two primary ways:

2. ● Open-loop payments ● Closed-loop payments Let’s understand both. What Is an Open-Loop Fare Collection? Open-loop systems allow riders to pay using third-party tools like debit/credit cards, Apple Pay, Google Pay, or other contactless methods. These systems work across financial networks and don’t require users to be part of a transit-specific program. This model is especially popular in major cities like London, New York, and Singapore, where commuters—especially tourists and irregular users—prefer convenience. Open-loop AFC focuses on interoperability. Riders can use the same payment method across multiple services or regions, creating a seamless experience with fewer barriers. What Is a Closed-Loop Fare Collection? Closed-loop AFC is built around a proprietary network managed by the transit authority or operator. It involves issuing dedicated fare media, such as: ● Smart cards ● Transit-specific e-wallet apps ● Prepaid cards Riders load funds into these tools and use them exclusively within your system. These are particularly effective for daily commuters, students, staff members, and senior citizens—those who rely on your services regularly and benefit from tailored fare programs. Key Differences Between Open-Loop and Closed-Loop Fare Systems Here’s a comparison table that highlights how these two systems differ:

3. Aspect Open-Loop Closed-Loop Payment Method Bank cards, mobile wallets Transit-issued cards or wallets Onboarding No account required Registration or card issuance needed Best Suited For Tourists, occasional users Regular commuters, student passes Fare Rule Control Limited (banks control structure) Full customization by operator Data Ownership Shared with payment providers Retained by transit authority Offline Availability Minimal fallback Works offline with stored value Accessibility Requires bank account Accessible to unbanked populations Personalized Offers Difficult to implement Easy to offer loyalty rewards Why Open-Loop Has Become the Go-To Standard Many transit networks choose open-loop fare collection as their first step toward modernization. And for good reason: 1. Easy Access for Occasional Riders First-time commuters and visitors don’t need to learn a new system. They simply tap their existing card or smartphone.

4. 2. Seamless Integration Across Operators Open-loop works well for large-scale transit systems with multiple service providers. It also supports regional integration under Mobility-as-a-Service (MaaS) models. 3. Lower Operational Overheads No need to issue physical fare cards or handle recharges. Payments are processed through existing banking infrastructure. 4. Scalable for Expansion Whether your system expands across districts or links to other services like parking or tolls, open-loop allows a unified, scalable setup. Why Closed-Loop Fare Systems Still Matter While open-loop systems increase convenience, they’re not designed for every scenario. They don’t always support: ● Fare discounts ● Subscription passes ● Offline use ● Unbanked passengers This is where closed-loop payment systems for transit offer real value. How Closed-Loop Enhances Open-Loop Systems You don’t have to choose one over the other. In fact, both systems can operate together to provide a flexible, inclusive fare structure. Here’s how closed-loop auto fare collection strengthens your offering: 1. Flexible Fare Programs and Discounts Closed-loop systems allow transit operators to offer student passes, senior discounts, daily caps, or custom pricing models. These personalized benefits aren’t available with open-loop tools. 2. Inclusive for Unbanked and Offline Users

5. Not everyone has a bank account or stable internet access. Closed-loop cards and wallets work offline, ensuring equitable access to transit for all users. 3. Rich Data for Smarter Operations With full control over the network, transit agencies can monitor: ● Travel patterns ● Route performance ● Usage frequency This helps improve scheduling, staffing, and pricing strategies. 4. Control Over Fare Rules and Capping Want to set daily or weekly fare limits? Or offer off-peak pricing? Closed-loop systems let you implement advanced fare logic that meets your operational goals. 5. Branding and Passenger Loyalty A branded transit card or wallet app creates a stronger connection with your users. It’s a daily reminder of your service and builds long-term rider loyalty. When to Use Open-Loop Fare Collection Open-loop fare systems are ideal if your goals include: ● Streamlining payments for tourists and infrequent riders ● Reducing backend fare management ● Integrating with regional MaaS platforms ● Providing minimal-friction onboarding for new users When to Use Closed-Loop Fare Collection Closed-loop systems are the right fit when: ● You serve regular or high-frequency commuters ● You want to run customized fare structures ● You aim to support unbanked or offline populations ● You need deeper data control for planning and optimization ● You want to build brand loyalty via fare media

6. Can You Use Both? Absolutely. Many forward-thinking transit systems use both open- and closed-loop methods. Open-loop provides scale and universal compatibility. Closed-loop brings personalization, better data, and improved financial inclusion. Transit authorities often start with an open-loop for public-facing simplicity, then layer in closed-loop programs to build loyalty and improve services for everyday users. Final Thoughts In a growing, diverse urban landscape, no single fare collection model fits all. Open-loop offers scalability, minimal friction, and easy access for the public. But closed-loop delivers deeper control, better engagement, and support for more inclusive transit policies. With platforms like SwiftPay, you don’t need to choose one or the other. You get a hybrid solution that lets you retain control, serve every rider type, and optimize operations—all while future-proofing your transit system. Ready to transform how your riders pay? SwiftPay makes it simple to launch a modern, flexible, and rider-friendly fare collection network that works for everyone. This blog was originally published at - Closed Loop vs Open Loop Auto Fare Collection: What Transit Operators Need to Know Reach us Email - hello@digipay.guru Contact Number - +91 9662923845