Hong Kong's Savvy Use of Smart Cards


By Bruce Einhorn The bad economic news keeps coming in Hong Kong: The unemployment rate hit a record 7.4%, and the numbers are just going to get worse, since economists figure that graduating students now joining the workforce will be unlikely to find jobs easily. So, while this city struggles to cope with chronic deflation and sagging competitiveness, it's not easy to find even a bit of good news. To rub salt in the wound, the reports of economic growth in archrival Shanghai remains irritatingly upbeat.

Sure, the World Cup finals have gotten people excited, but hometown favorite China crashed out of the tournament without even scoring a goal. Recently, a local public relations executive launched a flashy ad campaign designed to boost spirits, with buses sporting uplifting slogans like "There's a bump in the road. Get over it." But that hasn't done quite enough to make many Hong Kong residents start feeling more optimistic about the former colony's future.

So, for a break from the gloom, I talked to Eric Tai. This former bank executive is giving the city a much-needed reason to hope that maybe Chief Executive Tung Chee-hwa's vision of Hong Kong as an important hub for information technology has something going for it after all.

INSTANT TICKET. The 52-year-old Tai is chief executive officer of Octopus Cards Ltd., a Hong Kong company that runs the world's most successful smart-card operation. These are the credit-card size pieces of plastic with little chips embedded in them that allow people to store and spend cash without actually ever having to touch the stuff. A few years ago, tech enthusiasts were keen on the notion of smart cards leading to a cashless society, where people were freed from the bother of dealing with the annoyance of handling crumpled, unsanitary paper money or clunky, inconvenient coins.

That was the vision. But in most parts of the world, it has been a flop, as companies have struggled to get customers to embrace the technology. Sure, some small victories have been achieved. In the U.S., drivers rely on smart cards like EZPass to zip through tollbooths. But that success hasn't traveled far beyond the highway.

In Hong Kong, though, Octopus has been a hit since Day One back in 1997, quickly becoming well known as an instant ticket to every part of the city's transportation system. And Octopus is showing that its tentacles can reach far beyond the transportation system, with the card becoming the method of choice for buying all sorts of low-cost items, ranging from a tall skim decaf latte at Starbucks to a South China Morning Post newspaper at 7-Eleven.

TESTING AT MICKEY D. Tai's latest coup: getting Octopus accepted at the express-lane counters of ParkNShop, Hong Kong's largest supermarket chain. A former Hongkong Bank executive who moved to Octopus just last year, Tai has started an Octopus card trial with some McDonald's restaurants. He has also signed deals to make Octopus the security cards for apartment-building residents.

Recently, Octopus teamed up with Hong Kong's biggest mobile-phone operator to get cards installed in cellular handsets -- you just put your Nokia on top of the supermarket scanner or other electronic card reader, and you've made your payment.

The numbers tell the story. Some 8.6 million cards are now circulating. According to Octopus' figures, more than 95% of Hong Kongers between the ages of 15 and 65 are using its cards. That translates into a total of $2.2 billion a year in transactions, making Hong Kong the world leader in e-cash, according to the Committee on Payment & Settlement Systems, an industry group affiliated with the International Bank for Settlements in Basel, Switzerland. Boasts Tai: "We have a product that is simple, convenient, with fantastic customer acceptance."

EASY REFILLS. So what's the key to Octopus' success? It helps that the card is simple to use. After paying about $6 for the card, a consumer can then put money into the card's electronic wallet. Once you've used up your e-cash, it's easy to pay for a refill by using your ATM card to transfer money from your bank account to your smart card or by forking over some money to a vendor at the subway station or a clerk at the 7-Eleven. Octopus makes money from selling the cards and by charging the vendor a fee for each transaction. (Octopus won't say how much it charges.)

Tai, good company man that he is, credits the privately held Octopus' shareholders for this success: All of the city's major transportation operators -- such as publicly traded subway operator MTR Corp. -- own stakes in Octopus. With all of them cooperating, commuters have been able to use a single card to ride on the city's subways, trains, buses, and ferries. And since Hong Kong is such a compact place with one of the world's most extensive mass-transit systems, most everybody rides on something that takes an Octopus card.

Maybe another reason for Octopus' success is that Hong Kongers take to new technology pretty quickly. Of course, they're big users of mobile phones. And the city has one of the world's highest broadband penetration rates. In a city of immigrants living crammed into tiny apartments squeezed between the sea and the mountains, perhaps people are more willing to try out new technology if it makes their lives less stressful. Or, as Tai puts it, the goal is "to make life a lot simpler and more convenient."

WIRELESS TRANFERS. Now that Octopus has conquered the island, Tai has international dreams. In early June, he traveled to the Netherlands to make a pitch for a contract to set up a Dutch smart-card system. And he's working with Sony to design an Octopus semiconductor that can be installed in a mobile phone. Once those chipsets are ready, by late 2003, "you can send money to another person using our chipsets in the phone," says Tai.

Technology gurus have long talked about creating a cashless society, but Octopus cards are showing the way. And amidst all the pessimism plaguing Hong Kong these days, that's something to cheer about. Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online


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