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Case Study

Long Island Rail Road

The beginning

Started in 1834 as a convenient method of transportation, the Long Island Rail Road

(LIRR) has always provided high levels of service for its customers throughout the years.

The LIRR has since grown into the single largest commuter railroad in the country,

servicing over 82 million riders per year.

In 1974, with ridership reaching record levels, lines to purchase monthly tickets

were getting longer and commuters were beginning to get frustrated. LIRR policy

makers then developed the railroad’s first advanced ticketing program, Mail&Ride,

as a solution. Mail&Ride was a recurring payment program in which the customer

completed a form and submitted a check or money order as means of payment. A

monthly ticket was then mailed to the commuter, eliminating the need to stand in

line at the train station each month.

-more-

“We wanted to

focus on servicing

our customers, not

our paperwork.”

—Pete Sklannik

Director

Market Development

Long Island Rail Road

MasterCard Worldwide – Page 2

Long Island Rail Road

“The program was greeted with a lot of enthusiasm by our customer base,” says

Pete Sklannik, director of market development for the Long Island Rail Road. Within

that first year of operation (April 1975), the program attracted 650 users paying by

check. Today, Mail&Ride has over 46,000 participants.

The challenge

While popularity of the Mail&Ride program continued to rise, commuter payments

by check were creating more and more headaches as ridership increased. LIRR

executives were busy trying to find solutions for bad check debt, processing problems,

and the labor intensive trail of paper the program was generating. The railroad’s

operations team was being overwhelmed with the maintenance required for payment

realizations and collection efforts for bounced checks. The seemingly routine process

of opening envelopes, depositing checks, maintaining current account balances, and

record keeping became more and more demanding as the popularity of the Mail&Ride

program increased. Late payments requiring dunning added to the already challenging

customer service and accounts receivable process.

Late payments were also a problem because the LIRR was being forced to issue “late

fees” and suspend or cancel customer accounts with an increasing frequency. Although

account suspensions and cancellations were last resort measures, it was a course of

action LIRR executives were hesitant to take due to the negative associations. Even

with good checks, payment realizations were taking anywhere from a week to ten

days, depending on when the checks were posted. Late payments not only added time

to realization, but also to processing and overall management tasks. More importantly,

customer service representatives were being bogged down with paperwork, leaving

little time to provide proper service to the railroad’s customers.

Mail&Ride achieved the lowest number of dunning notices in eight years. Bad debt

collection is equally low. Today, with total annual ridership in excess of 82 million, the

Mail&Ride program continues to grow. LIRR management knew they needed to find a

way to streamline processing and reduce bad check debt in order to properly handle

increasing participation. When considering payment card acceptance as a possible

solution, the LIRR had three specific goals in mind:

Reduce or eliminate check writing. Late payments or unrealized payments due to

insufficient funds were being assessed a “late fee.” This practice was perceived by

customers as a negative even though they might very well be at fault. By reducing the

possibility for late payments and bounced checks there would be a reduced incidence

of late fees, thereby creating a more positive customer experience.

Provide an automatic recurring payment option. Most commonly facilitated via

bank cards, an automatic payment option is often perceived as a positive benefit by

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“Card payment just

simplified the

whole process.

Long lines are

slowly becoming a

thing of the past,

bad check debt is

disappearing, and

dunning efforts are

at an all-time low

because payment

card processing is

more convenient

for our customers

and more efficient

for us.”

—Pete Sklannik

Director

Market Development

Long Island Rail Road

“Mail&Ride

achieved the

lowest number of

dunning notices in

eight years. Bad

debt collection is

equally low.”

—Mitch Menarchem

Manager

Ticket Sales

Long Island Rail Road

MasterCard Worldwide – Page 3

Long Island Rail Road

the customer. Since processing is faster and costs are minimized by encouraging

automation, this translates into higher customer satisfaction and improved operations

for the railroad. As of January 2000, Mail&Ride has 37 percent of its customer base

enrolled in the automatic payment option. The average payment charged to this option

is $180. This amounts to almost $3 million in automatic payments, further evidence of

the migration from check payments.

Increase levels of productivity. By reducing the amount of paperwork and

processing time required to maintain Mail&Ride accounts, LIRR customer service

representatives would be able to dedicate more time and effort to servicing customers

rather than troubleshooting.

One concern the LIRR had about offering a recurring card payment option was that

customers might not be comfortable sending card information through the mail.

However, the projected benefits of such a program far outweighed the possible

drawbacks for both customers and the railroad. The LIRR’s parent company, the

Metropolitan Transportation Authority (MTA), began to discuss this program with

MasterCard Worldwide and others.

“We felt that implementing a card acceptance program would help to accomplish the

goals set forth, and such a program would have positive results for the commuter and

our Customer Service Department,” says Sklannik. “It did all that and more.”

To announce the new payment option, statement inserts were mailed to all existing

Mail&Ride participants. What the LIRR did not anticipate were the immediate high

levels of participation in the new program. Within the first sixty days of

implementation, the level of payment card usage by Mail&Ride customers jumped

to 18 percent of all participants. In one year, that percentage grew to 28 percent

at an increased rate of nearly one percent per month. The LIRR’s customer service

representatives were able to function more productively, and customer feedback

for the card payment option was extremely positive.

-more-

According to

the Long Island

Rail Road, the

projected benefits

of recurring card

payments are:

• to increase

convenience for

the commuter

• to ease processing

and paperwork

• to increase

payment realization

MasterCard Worldwide – Page 4

Long Island Rail Road

The process

The LIRR pursued card acceptance to provide better customer service and improve

operations. The Long Island Rail Road first teamed up with MasterCard in November

1997 and their goals soon began to fall into place.

With the implementation of a card acceptance program, the LIRR noted the

following improvements as a direct result:

• It improved customer service immediately, with continued improvement

as additional customers take advantage of the card payment option.

• Payments are realized faster (three to five days in most cases), and bad

debt has also been dramatically reduced.

• The railroad’s approval rating is at an all-time high, indicating there are

many more satisfied customers than in previous years.

These improvements can only continue to increase as more customers realize the

convenience of card payment. “It has improved our productivity as well as our ability to

deliver better customer service, resulting in high levels of customer satisfaction that will

continue to improve over time,” Sklannik says.

Senior executives at the LIRR feel that teaming up with a company, such as MasterCard,

also affords the railroad opportunities to partner with national retailers for value-added

programs. For example, a promotion with a home electronics chain offered Mail&Ride

subscribers (using MasterCard as a method of payment) a 10 percent discount if they

used their MasterCard

card. The LIRR reported that nearly 13 percent of their card

users took advantage of the program during that promotion.

As of 1997, Mail&Ride enrollment was nearly 45,000, with growth expected to

approach 48,000 due to the addition of the MetroCard transit pass and convenient

card payment option. Figures indicate that more than 12,000 Mail&Ride customers

currently use a card to pay for their monthly tickets. Those tickets may be purchased

via mail or through some ticket vending machines. Not all vending machines currently

accept payment cards, but there are plans for universal credit and debit card

acceptance in the near future.

As the LIRR expands card acceptance to all ticket vending locations system-wide,

improved financial efficiency is sure to continue. “Card acceptance has been an

absolute positive for the Mail&Ride program,” Sklannik says. “It enables the LIRR to

partner with merchants and create another avenue for improved customer relations.”

Ticket vending machines will obviously see similar improvements as they become more

user-friendly and convenient to use.

-more-

“Accepting cards

for payment

helped [the Long

Island Rail Road]

be a part of the

solution.”

—Pete Sklannik

Director Market

Development

Long Island

Rail Road

MasterCard Worldwide – Page 5

Long Island Rail Road

The future

“If there’s one thing New Yorkers are short on, it’s time,” says Sklannik. “So for the

most part, our customers appreciate the convenience we now offer with the card

payment option.” This is a recurring theme in the company’s expansion plans. From

upgrading ticket vending equipment to online capabilities, the LIRR intends to keep

up with the times. Payment cards are a big part of that.

Sklannik cites the success of new ticket vending machines that now accept card

payments as one of the leading factors for expanding card acceptance into the

Mail&Ride program. He believes that accepting payment cards has actually helped

to sell the program to LIRR commuters.

Value-added partnering programs with payment card merchants may also help to open

many new doors for the railroad, and LIRR executives plan to continue moving forward.

“We’ve only scratched the surface with our partnering with MasterCard,” adds

Sklannik. “We believe that only greater success can come of it in the future.”

Overall, the LIRR feels that their success with the Mail&Ride program can be attributed

to the focus they have placed on their customers’ needs and the added convenience of

the card payment option.

“We have employed a financial practice that both enhances customer satisfaction levels

and improves our operations significantly as we move forward.” summarizes Sklannik.

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“The added benefit

was that we were

realizing payment

immediately by

accepting payment

cards, rather than

waiting for a

check, which may

never come.”

—Pete Sklannik

Director

Market Development

Long Island Rail Road