Breakage on MTA MetroCards

Sent a letter to Newsday in response to this story (link likely to die after today):

Submitted for Publication

It’s called “breakage” and it’s the term used to refer to unredeemed value when any business plan involving a stored value card is constructed. Stored value cards can be gift certificates, pre-paid phone cards, pre-paid debit cards or anything that holds a monetary value, including Metrocards.

In putting together any business plan involving stored value cards, making assumptions regarding breakage is a critical component of the plan. Taking liabilities off the books when cards expire frees up revenue and adds dollars to the bottom line for any marketer employing a stored value instrument. That’s why it took me by surprise to see New York City Transit Spokesman Charles Seaton quoted in your story as saying the issue of forfeited fares is “really no gain to the transit authority because it doesn’t affect the amount of service we put out.” This quote implies that the breakage was somewhat of a pleasant surprise for the MTA. If the MTA engaged in responsible business planning, which I’ll assume they did, at least a percentage of this breakage would have been accounted for in the plan.

Can one blame the MTA for its low-key approach to the redemption policy? Publicizing it simply takes money from their bottom line. And if the MTA planned the Metrocard program responsibly, they likely had a fairly good idea of how much money the breakage would represent on their books.

Sincerely, Tom Hespos [personal info deleted from original letter]

Let's see if they print it.