Octopus: the Growing E-Payment System in Hong Kong
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E-COMMERCE IN AUSTRAL-ASIA , n A b s t r a c t o i s Octopus: The Growing E-payment System u f Although debit/cash cards based on smart f i d card technology promised to bring forth the in Hong Kong y g end of loose change, very few managed to o l o gain critical mass or come close to totally n h c eliminating coins including those supported SIMPSON POON AND PATRICK Y.K. CHAU e t by major credit card operators (e.g., Visa , m Cash and Mondex). In this paper, we discuss e t s y a specific system – Octopus – which not only s t gained momentum among the passenger n e transportation industry in Hong Kong, m y a but also expanded into other payment p , channels such as fast food outlets and n o i snack machines. We examine the factors t a t r why Octopus has been successful despite o p s most micro-payment systems failing to n a r gain critical mass let alone expand their t , customer base. Finally, we conclude that d r a convenience factors, a specific set of c g people typing faster. Rogers suggests n INTRODUCTION t societal factors and its management o r K a strategy to expand from a captive market that it is the social system, the social g m s n Technology adoption and diffusion and communication structure which o towards a generic micro-payment system : H s , has been one of the most addressed gives stability and regularity to indi- d s r had been instrumental to the growth of this u o p research topics in Information Systems vidual behaviour in a system that w o e-payment system. t y c e (IS) and Organization Sciences. Over facilitates or impedes the diffusion of K O the past two decades, new innovations innovations in the system. and tools for improving productivity In this paper, we examine why the and efciency through Information Octopus card, a fare-payment smart Technology (IT) have led to major card for the Hong Kong passenger transformation in organizational transportation system, has been so congurations. However, not all successful in gaining critical mass while technological innovations received the other equally or better supported same welcome. Sometimes, seemingly options such as those backed by the clever innovations did not grow credit card operators did not perform beyond the prototype stage and equally well. A u t h o r s technically superior innovations failed Using smart card technology to Downloaded By: [Schmelich, Volker] At: 12:59 16 March 2010 Simpson Poon ([email protected]) to compete successfully with their replace cash was not new to Hong is the Director of the Centre for lesser competitors as in the case of Kong. Major credit card operators g E-Commerce and Internet Studies at r VCR standards. and nancial institutions had been o . s Murdoch University in Australia and t However, there are technologies, capitalizing on such business e k a Visiting Associate Professor at the r which may not be a perfect t for opportunities throughout the 1990s. a School of Business, The University of m c current customers’ needs, which are Initiatives such as Mondex and Visa i s Hong Kong. He has more than 10 years n t e o positioning for ‘making the kill’ in the Cash (Westland 1998; Westland et al. r k of experience researching and consulting t r c a e future. Such technologies are created 1997) had promised to revolutionize l in E-Business. He has published widely M e . c through a process called ‘disruptive the future of e-payment systems. i in both academic and professional w n w o journals. innovation’ (Bower and Christensen However, after a few years of trial and r w t . c 6 Patrick Y.K. Chau 1995). Disruptive technologies are development, Mondex and Visa Cash e l 0 E 1 ([email protected]) is Associate – risky businesses in the sense that future had only attained limited success in 1 7 0 9 Professor of Information Systems at customer needs and preferences can terms of market share compared to the 0 : ) 2 the University of Hong Kong. His 2 ( be difcult to predict accurately. Octopus card. The Octopus card was © 1 t research interests include issues related 1 h Rogers (1983: 10) discusses the failure not even technologically more secure – g e i to IS/IT adoption and implementation, r m to diffuse the Dvorak keyboard, which because it did not have the same level y u p information presentation and model l o o was better designed, endorsed by the of security technology built into the C V visualization, and electronic commerce. He has published in major information American National Standards Institute card as its competitors’ (Hong Kong systems journals including MISQ, and promised to improve typists’ Economic Times 2000). Neither did it JMIS, CACM, Decision Sciences and efciency only to nd itself dominated have a gigantic client base compared other publications. by another standard designed to stop with VISA and Mastercard although one could argue that when the underground railway wallet, personal identity card and a loyalty card (one that company – Mass Transit Railway Corporation Limited accumulates loyalty points for various loyalty programmes). (MTRC) adopted the Octopus system, it had a regular and In Singapore, the contactless card application in trans- captive client base. portation is the Electronic Road Pricing (ERP) system. It The history of Octopus started in June 1994 when was implemented in 1998 with an ‘in-vehicle-unit’ tted Hong Kong’s ve major public transportation operators in approximately 670,000 vehicles, making it the largest Mass Transit Railway Corp. (MTRC), Kowloon-Canton application in the world at the time (Gemplus 1999). Railway Corp. (KCRC),1 Kowloon Motor Bus Company In France the Paris public transport system, RATP, (KMB), Citybus Ltd and the Hong Kong and Yaumatei trialled and implemented a smart card system called Passe Ferry systems (HKF) formed a joint venture company, sans Contact with more than 20 million transactions com- Creative Star Limited, to develop an automated fare col- pleted. The main reason for changing from a magnetic lection system based on contactless smart cards. The fare strip based system to the current contactless card system collection contract, valued at US$ 55 million, was awarded was the increased speed of transaction plus better passenger to ERG Australia Limited and its subsidiary AES Prodata, ow. However, the system also helped to decrease fraud. which subsequently awarded the contactless card portion According to the project team at RATP, although the initial of the contract to Sony and Mitsubishi Corporation. These outlay of the new system might be more expensive than contactless reloadable smart cards, known as Octopus the current one, when fully operational the solution could cards, were introduced to the general public in September cut costs in half and with savings close to 80 million euros 1997. An estimated 10 million passenger journeys are (Goldnger 1998). made each day on Hong Kong’s wide variety of public London, another European city with a major transpor- transport services. The Creative Star Octopus System, when tation infrastructure, awarded a 17-year contract to build launched, was the largest integrated contactless smart card an integrated revenue collection system worth 1 billion fare collection system in the world and accounted for GBP in 1998. When completed, the system, called LT HK$20 million2 in transactions (Industry Canada 1998). Prestige, will be used in the bus system and underground All operators’ computer networks are linked to the railway stations. The rst full roll-out is expected to happen Creative Star Clearing House system, which apportions in 2002. The system also aims to provide electronic wallet revenues to the operators and deposits funds into appro- and other capabilities such as loyalty programmes. priate bank accounts. In mid-2000, there were 6.5 million In the US, there have been a number of initiatives in cards in use and a further 2.6 million cards were to be transportation and fare-collection. In Ventura County, issued. Card users have the capability of re-charging and California, the Ventura Transit Commission and Echelon using their cards for other purchases. Currently, card- Industries, Inc, utilized a proximity (contactless) card holders can re-charge their card in any MTRC and KCRC system for the eight transit operators in the county (Leung station as well as any of the 368 7–11 convenience stores 1998). There are many other transportation systems in within Hong Kong (Leung 1999). the US using a smart card fare payment system. Many In 1998, Creative Star was also negotiating with Mondex of them (e.g., the TransLink system of San Francisco, the g and Visa Cash to incorporate an electronic purse function Los Angeles MetroCard, the Metropolitan Transit System n o Downloaded By: [Schmelich, Volker] At: 12:59 16 March 2010 K into its originally closed system. As of October 2000, the of the greater San Diego area and the Chicago Transit g n MTRC still owns a 67.8% stake of Creative Star Limited. Authority) were in the process of converting from a o H n contact-based solution to a contactless one. i s u p o t APPLICATION OF SMART CARDS IN PUBLIC TRANSPORT c SYSTEMS TYPICAL SUCCESS FACTORS OF SMART CARD ADOPTION O IN PASSENGER TRANSPORTATION SYSTEMS u a Application of stored value cards for fare-paying purposes h C in public transport systems was considered to be one of Although the smart card was potentially an ideal replace- .