Never take a percentage of the fare
Many fare-system vendors are paid a share of the fares they process. That gives the vendor a financial stake in fare policy, and it is a stake no agency should have to negotiate around.
For much of the past fifteen years, a common way for a transit agency to pay for a modern fare system has been to pay very little up front and give the vendor a share of every fare it processes. The arrangement suits a tight capital budget. It shifts risk to the vendor, which is paid only when riders pay. And it has an appealing symmetry: as ridership grows, the vendor grows with it.
Until 2022 Halvery sold fare contracts on exactly those terms, usually for between 3.5 and 5.5 per cent of fare revenue. We have since stopped. I want to explain why, because I think the percentage model creates a conflict that agencies should not have to manage and vendors should not want to carry.
When our revenue argued with the agency's policy
Fare policy is how a public agency decides who pays what for a public service. In recent years Canadian agencies have been taking more of those decisions, and taking them more boldly. Fare capping limits what a rider pays in a day, week or month to the price of a pass, so that people who cannot afford a monthly pass up front stop paying more for the same travel. Free fares for children, reduced fares for low-income riders and free transfers between operators all lower the fare collected per trip. Each choice is made by a board or council that has weighed equity, ridership and the operating budget. Under a percentage contract, each also lowers the vendor's income.
I did not take that seriously until I saw it in our own behaviour. In 2021 one of our account teams began, in meetings with agency staff, to question whether a proposed fare cap was administratively wise. The arguments were not wrong in themselves. But they came from people whose bonuses depended on fare revenue, and the agency's staff knew it. I do not believe anyone set out to lobby against a public policy. The contract had simply given us a motive.
The pandemic exposed the same structure from the other direction. When ridership fell by more than half in 2020, our income from percentage contracts fell with it, while the cost of keeping thousands of validators and a payment back office running did not. The agencies could not help us and we could not cut service. Both sides learnt that a contract which moves revenue risk to the vendor also moves the vendor's interests towards the agency's decisions.
What a fixed fee has to promise instead
A fixed fee per equipped vehicle and per station removes the conflict, but on its own it does not give agencies what the percentage model offered them. They chose percentage contracts for sound reasons, and a fixed fee has to answer each one.
The first is risk. Under a percentage contract the vendor shares the cost of a poor system, because a system riders avoid earns less. A fixed fee has to replace that with explicit service levels: availability of validators and back office measured monthly, and credits paid to the agency when either falls short. Our contracts set those credits at a level that hurts us, because a credit that does not hurt is not really a promise.
The second is the capital budget. Percentage pricing let agencies avoid large upfront payments. We now price hardware separately, so that it can be funded from capital budgets and the federal and provincial programmes that support transit capital projects, and confine the recurring fee to software, support and operations. Card-processing costs pass through at cost, plus a fixed margin per transaction that we disclose. A rider who taps twice under a fare cap costs us the same to process whether the second tap is charged or free, and we charge accordingly.
The third is transparency. A percentage hides the vendor's price inside the fare. A fixed fee is visible to councils, which means it has to be defensible in public. We publish list prices for each module so that a small agency without procurement specialists can see what a larger one pays, and our discounts follow published volume bands rather than private negotiation.
Since 2022, fourteen of the nineteen contracts that were on percentage terms have moved to this model. All fourteen renewed. Six of those agencies have since introduced fare capping or free fares for children with no change to their contract with us. In 2025 those fourteen contracts earned us about C$3.1 million less than percentage terms would have, as ridership recovered. That is what it costs us to be indifferent to fare policy, and I think it is the right price.
The objection I still take seriously
The strongest argument against my position came from inside our own boardroom, and it deserves a fair hearing. A percentage contract ties the vendor to ridership. If our revenue grows only when more people ride, we have a reason to build products that make transit easier to use, and an agency gets a supplier with a stake in its success. A fixed fee, on this view, turns the vendor into a contractor paid whether riders come or not.
I accept part of this. A vendor on a fixed fee can become complacent, and an agency should guard against that. But the alignment is weaker than it looks. Ridership depends overwhelmingly on frequency, coverage, reliability and land use, none of which a fare vendor controls. What a fare vendor does control is the experience of paying, and that is better governed by service levels and rider-satisfaction measures in the contract than by a share of revenue that moves for reasons unrelated to our work.
The other objection is practical. A fixed subscription appears in an agency's operating budget, where a percentage fee was netted out of fares and seldom discussed. At two of our customers, moving to fixed pricing required a council vote and delayed renewal by a quarter. That is a real burden on agency staff, and we now help them prepare the report. I would still rather a council saw plainly what it pays us.
For agency boards the test is short. Before approving a fare-system contract, ask whether any fare policy the board might adopt in the next ten years would change the vendor's income. If the answer is yes, the vendor has an interest in your fare policy. It may never act on that interest. But the board should not have to wonder.