In just eight years, the Octopus card has become so entrenched in the Hong Kong way of life it is now taken completely for granted. Nobody thinks twice about using it, and no local person is particularly impressed by what it is or what it does. But, despite being a plain and simple item basically a piece of plastic that you wave over a turnstile to gain access - it is one of Hong Kong’s finest and most successful technological achievements. It is known and respected around the globe, and the metropolitan governments and public transport systems of some of the world’s most technologically advanced countries have been beating a path to Hong Kong to find out just how this success was achieved. Ironically, being taken completely for granted by Hong Kong commuters is
one of the best measures of the system’s success.

Like so many great products, the Octopus card is the result of the vision and enterprise of a group of forward-thinking people and corporations. And, like so many great ideas, it was a creative solution to a common problem.

The core of the problem lay in the widespread use of Hong Kong’s public transport network, and the demands of Hong Kong people for quick, easy ways to go about their daily business. Hong Kong is one of the world’s most densely-packed urban populations and for many years the government has wisely placed curbs on private ownership of vehicles and encouraged the use of public transport. As a result, Hong Kong has one of the finest public transport networks in the world - a mix of trains, buses, taxies, ferries and even hillside elevators. Every day, some 11 million-passenger journeys are made throughout the city.

One of the most effective and heavily used of these transport options is the Mass Transit Rail, or MTR, which opened with a single line in 1979 and has been spreading through the city ever since. This rail network is an amazing people-mover - to get a physical grasp of the sheer speed at which it can move people around you only have to stand for a few minutes on a busy station and see trains pull in every 2-3 minutes, disgorge hundreds of people, take hundreds more on board and disappear in a matter of seconds.

In order to move people in and out of the stations at a similar rate, the MTR realized right from the beginning it would need a flawless, fully automated, and ultra-fast fare collection system. The initial system used single journey plastic cards with a magnetic strip that were issued through ticketing machines and recirculated after each journey was completed. In 1984, the Kowloon-Canton Railway Corporation (KCRC) adopted the same magnetic card, which was further developed to allow passengers on both railways to pay for their journeys with a single card that had a stored monetary value and could be used for multiple trips. The Common Stored Value Tickets (CSVT) system was a great success, and in 1989 was further extended to selected Kowloon Motor Bus (KMB) feeder buses and one Citybus route.

The MTR took the lead in1992-93 by reviewing its fare collection technology and devising a development strategy for the next decade. While the CSVT system had been well accepted by the public, i had reached the limits of its development capabilities, and the handling and maintenance cost of the magnetic ticketing system was relatively high.

Contact-less smartcard technology was recognised as the most appropriate platform for the next generation system because it offered several key advantages:

• Reduced maintenance cost
• Reduced capital replacement cost
• No card recirculation cost
• Reduced cash handling
• Fare policy flexibility
• Shorter transaction times
• Fraud reduction
• Marketing opportunities (e.g. loyalty programmes, intermodal discounts)

The Creative Star Limited joint venture (renamed Octopus Cards Limited or OCL) was formed in 1994 by the MTR, KCRC, KMB, Citybus and Hong Kong and Yaumati Ferry (HYF) to oversee the contact-less smartcard system’s development and implementation.

After three years of development and trials, the Octopus system launched in September 1997 allowed commuters to travel across six public transport modes using one single card and eliminated the hassle of finding exact change for individual journeys.

The system was innovative, and not just in its technology. In order to gain widespread acceptance and use, some visionary business agreements were reached. In this sense, the whole Octopus network is remarkable because despite competing for passengers, all five transport operators have all worked together to ensure a seamless payment system. This co-operation has been extended even further to give the card - or more importantly its users - the benefit of multiple applications. It is designed to accommodate multiple service providers from both the transport and non-transport sectors, allowing multi-application developments to provide even greater convenience to the public.

“In the beginning we developed a SIMPLE way to pay fares on public transport in Hong Kong. Then we extended our reach into SIMPLE micro-payments for purchases in retail outlets,” says Eric Tai, Chief Executive Officer of OCL.

“In doing this, we developed a unique and robust Central Clearing House System to perform the complex clearing and settlement functions, and handle huge transaction volumes for various organisations from different sectors,” Mr Tai explains. Again, it was a remarkable achievement in business co-operation that almost matched the technology of the card itself in terms of innovation.

These first basic agreements have gathered momentum. OCL was authorized as a Deposit Taking Company by the Hong Kong Monetary Authority in April 2000, allowing the Octopus card to be expanded to a wider base of different applications. A new agreement was signed amongst shareholders in January 2001, and the HYF shares were transferred to New World First Bus Limited and New World First Ferry Services Limited.

Nowadays, Octopus can be used on virtually all of Hong Kong’s transportation modes, as well as in car parks, parking meters, retail outlets, self-service businesses, wet markets, leisure facilities, schools and access control.

The e-payment experience has actually become part of Hong Kong’s daily life, and one could live quite well using nothing but this amazing card. It appears in virtually all of Hong Kong’s transportation systems, including the MTR, railways, buses, trams, the Peak Tram, maxicabs, coaches and shuttles, as well as more than 160 car parks and
18,000 parking meters throughout the territory.

The card can be used in fast food outlets, bakeries, convenience stores, supermarkets, personal care stores and even Chinese wet markets. It is accepted at 5,000 vending machines and kiosks selling soda and snacks, ice cream, movie tickets and photo services…… and can even be used for music downloads and purchasing insurance.. The savvy technology even takes attendance at schools and handles school purchases… The list just goes on and on.

“Within a few years, Octopus could be like the electric light switch. No one worries about coins in the meter or how the electricity gets generated; it’s a quick flick of the switch and the light is on,” says Mr Tai.

Leveraging the card for access control for premises and authentication signifies another move in extending the card’s use for non-payment purposes. At present, more than 80,000 Hong Kongers are enjoying the service- free from the hassle of carrying additional cards and memorizing access codes.

Harnessing Octopus readers and the card’s memory block, Octopus helps transport operators and merchants conduct various loyalty and cross-sector marketing programs. Using such a popular card with its massive user base provides speed to market, allowing businesses to outperform competitors with market differentiation and provide added-value services to retain customers.

“Nowadays, most people have over a dozen of discount or VIP cards for various shops or restaurants, carrying them all when they go out is impractical. Embedding them on an Octopus allows customers to basically carry hundreds of VIP or loyalty cards, making them easier for merchants to track the usage, at the same freeing customers of bulging wallets,” Mr Tai predicts that this is a new area Octopus can excel.

A quick look at some of the card’s achievements in plain unadorned numbers illustrates how effective this whole system has become:

• It is the world’s largest multi-purpose contact-less smartcard system with the highest circulation. More than 11 million cards are in circulation
• It has the highest transaction volume: more than 8.8 million daily transactions (100 transactions every second) totalling US$ 2.8 billion (HK$22 billion) a year
• It has the highest penetration into a community: 95% of the Hong Kong population use the card
• It has the widest scope of applications: over 300 service providers accept Octopus. Other cities have tried to introduce similar contact-less smartcard systems, but without the scale and diversity that Hong Kong so uniquely achieved through Octopus.

“Octopus’ success is important to Hong Kong people not only because it’s part of everyday life, but it’s also made everyday life so much EASIER,” he says.

The humble Octopus Card is a true world leader, an innovation in business and technology that sets a great example for all Hong Kong entrepreneurs to follow.