DEVELOPMENT OF AN ELECTRONIC TOLL COLLECTION SYSTEM

PHASE I: TECHNOLOGY INVESTIGATION AND CONCEPT DEVELOPOMENT



Scope of Research            Scope of Research

     This report summarizes the research conducted by the
Advanced Transaction Systems Group (ATS). The research
findings reported here relate to the regulatory and the
operating requirements of the financial services provider
that would have to be considered in the design of an
electronic toll system. This objective is to satisfy a
requirement in the Battelle proposal calling for;

      "an examination of the regulatory aspects that must be
designed into the system so that it will be accepted by
customers and financial institutions,as well as being
accepted by local,state and federal authorities".

      This report will focus on the financial institution
requirements for participation in an electronic fund
transfer system (EFTS). Consumer implications will be
mentioned where appropriate.

Research Scenario

      In pursuing the examination of EFT regulatory
implications for the design of the proposed Winko-matic
electronic toll collection system (AVI) we assumed two
possible operating states. They are the following;

Operating State One.
     * To operate within an electronic fund transfer
network owned and operated by a depository institution.

Operating State Two.
     * Operate a third party system or private network with
a financial relationship to a depository institution.

Overview of EFTS Requiremants

     Participation in a payment system of the United States
requires that the entrant abide by the laws established
under various banking acts and interpreted under  commercial
law codes. Many of the rules and operating procedures for
the U.S. payment system were developed at a time when the
system was based on the clearing and settlement of paper
credits and debits. Therefore, when the system moved from a
paper based, manual and batch processing orientation into a
system dominated by telecommunications and computer
technology many of the operating rules were maintained and
did not cause any significant operating problems. However,
other rules presented problems and required that a new body
of law be established for handling electronic financial
transactions.
     For example, the most popular form of bill payment is
made possible through the demand deposit account. Over the
years, the body of law for the paper based checking account
has institutionalized such features as;

     1. return of cancelled checks to the customer,

     2. stop payment features,

     3. account security using signature verification,

     4. practice of float management.

With the appearance of electronic fund transfer systems
banks are faced with the challenge of maintaining the
features of the paper based system while at the same time
trying to capture the benefits of online computer systems.
For example, a debit card transaction is, in reality, an "
electronic check". But how does one design features such as
acceptable customer verification,stop payment
orders,recording of the transaction and preservation of
float management. In addition,a paperless payment system
brings about new issues such as the use of electronic codes
for signatures, reconciliation of disputed transactions,
assdurance of customer privacy and security.
     Resolution of these issues were made possible by the
passage the passage of THE ELECTRONIC FUND TRANSFER ACT OF
1978. Attention is called to the following definition of an
"electronic fund transfer" as found in the Act.

     " any transfer of funds,other than a transaction
originated by check,draft or similar paper instrument,or
computer magnetic tape so as to order,instruct,or authorize
a financial institution to debit or credit an account. Such
terms includes, but is not limited to, point of sale
transfers,automated teller machine transactions, direct
deposits or withdrawal of funds, and transfer initiated by
telephone."

In addition to the 1978 Act, payment system transactions are
covered by the following rregulations or guidelines;

1. Comptroller of the Currency:Consumer Protection
Guidelines (Banking Circular # 66).

2. Federal Home Loan Bank Board:Remote Service Unit
Regulations 1978.

3. Various state electronic fund transfer laws. ( About 15
states have enacted EFT laws ).

4. Other consumer protection laws.
     a. Truth in lending Act
     b. Fair Credit Billing Act
     c. Equal Credit Opportunity Act
     4. Fair Credit Reporting Act.

The 1978 Act was ammended with an all encompassing consumer
protection piece of legislation called REGULATION E which is
designed to cover combined EFT/credit transactiions. IN
brief, REG E pertains to;

      "electronic fund transfers that also involve credit
transactiions made under an agreement between a consumer and
a financial institutiion to extend credit when the
consumer's account is overdrawn (overdraft line) or to
maintain a specified minimum balance"

5. The U.S. Uniform Commercial Code ( Law of Check
Collectiions, Bank/customer Realtionships, and Credit Cards.


Scenario State One-The Proprietary Bank Network Option

     The decision to integrate the electronic toll system
into the EFT network of a depository institution requires a
commitment be made to operate according to the rules and
procedures of the financial service provider. That is,
according to the EFT Act ofd 1978 and the other regulatory
requirements of federal and state agencies. In addition,the
EFT provider may have certain operating rules peculiar to
the network and have a fee schedule that is sensitive to
usage and reflective of level of service chosen. In brief,
the EFT provider sets the operating and business environment
for the network and there may be very little flexibility to
recognize the unique needs of the toll road operator.

     Specifically,the following features would have to taken
into account in the design of an electronic toll road
system.

1. An deposit account would have to be established with the
financial institution. This account would have to have the
proper EFT access relationships established.

2. The customer would either select or have computer
generated personal identfication number .

3. The use of the service for toll road services and
transactions would have to explained  by bank personnel.

4. The system would have to accommodate the need for account
validation,customer verification and issuance of a reciept
at the completion of the transaction.

5. Provision for account reconciliation procedures such as
settlement of disputed transactions and reverse payments
would have to be accounted for in the system design.

6. Customer statement account would need to carry special
codes to designate toll road transactions.

     The direct participation in an EFT network does carry
significant benefits that are worth considering. Perhapos
the most important is the utility  and the acceptability of
the the bank card. Consumers  are interested in a card that
can be used for a wide range of financial services and is
universally accepted by all merchants.

     Participation  with an EFT network provider brings the
benefits of possible relationships with Visa, Mastercard,
American Express, Carte Blanche or a local debit card. A
card that carries a high perceived value by the consumer
will have a greater potential for high usage in the toll
system.

     However, such participation may come at a premium price
that may be to high and cannot be accepted. Abiding by the
rules of the EFT network provider may significantly affect
the design of the electronic  toll system. The economics of
the participation may also affect the business case for the
venture. As a result, we may have to consider another EFT
arrangement that allows for more flexibility in the design
of the AVI system and shows the economic potential to the
Authority and, most important,improves the business case for
Winko-Matic.

Scenario Two : The Private Network Option

     The greatest amount of system design flexibility is
offered by what we call the private network option. Under
this scenario, the network operator is responsible for
developing and implementing the operating rules and
procedures for the electronic toll system. In our case,the
AVI system operating features would be developed by Winko-
Matic based on the requirements of a public transit
authority.

     Assume that the Authority is interested in increasing
toll revenues and reducing operating costs by using an
electronic toll collection system. The revenue objective can
be met by a new pricing policy and offering better service.
For example, the ability to offer time-of-day pricing
alternative to the static fee schedule currently in place
has the potential to increase revenues and improve traffic
management. The user of the toll road would view this
service as  worthwhile and if shown to be cost effective the
user would see it as having a high perceived value.

     The AVI system design would,therefore, have to satisfy
the following requirements;

1. Increase revenues by means of new pricing alternatives.

2. Improve service by faster user throughput.

3. Reduce or eliminate revenue leakage.

4. Improve traffic management.

5. Offer more cost effective services to wholesale
customers.
6. Reduce labor and physical plant costs.

7. Expand services to the retail customer.

     Any attempt at designing the AVI system demands that we
determine the costs and benefits stream accruing to each of
the parties involved. That is, the technical design of the
AVI system is directly dependent on how much the user is
willing to pay for the service and whether the Authority can
achieve their  revenue and cost reduction objectives.
Therefore,the final design of the system can only be
accomplished when a thorough economic analysis and solid
business case can be made to the Authority.

     Summary of Findings

     Based on the analysis and research conducted thus far
the ATS group submits for consideration the following
findings;

1. Proprietary EFT network providers offer an attractive
payment service option.

2. Participation in such bank networks place severe limits
on the design of an electronic toll system.

3. A private or custom designed electronic toll system
offers the greatest design flexibility.

4. The benefits and costs of the system features must be
identified and quantified.

5. An economic analysis must be performed before a final
system design is completed.

6. A decision cannot be made until a business case is
presented to Winko-Matic.