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"Beeping" Marvellous

As Octopus celebrates its seventh anniversary this year, the sky appears to be the limit for the company's future growth as governments around the world look at how they can import this technology

In 1997, a strange little sound started to be heard across Hong Kong. It was the Octopus beep, or as affectionately referred to by some, the "dood." Within three months of its launch, 3 million Octopus cards had been sold. Today, over 11 million cards are in circulation clocking up 96 transactions per second.

The little cards that we all take for granted today never fail to impress visitors to Hong Kong who always leave saying, "we should have something like this where we live." And soon, they may have the very same technology as Octopus spreads its tentacles overseas.

Octopus Cards Ltd was formed when five major transport operators in Hong Kong in 1994 joined forces to search for a way to eliminate the cost of collecting, sorting and depositing almost 100 tonnes of coins that they handled daily. They also thought about how they could eliminate the hassle of having passengers fumble around for coins or waiting for change. This, in turn, would reduce delays and allow bus services to run more efficiently and economically.

"Many countries' transport operators are now starting to seek ways to eliminate these unnecessary costs and delays," says Eric Tai, Chief Executive Officer of the company. "With seven years of expertise in operating the Octopus system, especially the back-end Central Clearing House System which processes over 8 million transactions and deposits the money in operators' accounts by the next day, we are in a very strong position to sell this Hong Kong technology globally."

In 2003, The Netherlands began implementing Octopus technology nation-wide on its public transportation system, and plans to launch the service in 2005. Other countries in Europe and North America, as well as Australia, have shown interest in importing the technology. Last year, Octopus received hundreds of overseas visitors looking to find out more about the technology, and the company is regularly featured on TV and in the press around the world.

"With the increased acceptance of information technology around the world, authorities in Europe, North America and Australia are starting to see this technology as the basis of other vital infrastructure needs," Mr Tai explained.

Although still primarily used for transportation, Octopus has been extending its reach to allow users to make purchases at vending machines, convenience stores, supermarkets, and just this year, wet markets.

"If you have bought fish or other fresh produce at wet markets, then you know the state that your change can be in when the fishmonger hands it back to you," he said. "Another very practical application is Octopus parking meters, which will be in operation across the whole of Hong Kong by the end of the year. This is a big improvement and cost saving for the government over the old pre-paid parking ticket meters."

Moreover, because unique codes can be written to Octopus chips, the technology is also being adopted for non-payment uses, such as access to residential and commercial buildings, and taking of school registers. Parents can even apply to receive an SMS message to notify them when their child arrives at school, or alert them if he or she fails to show up. So far, 70 primary and secondary schools around Hong Kong register children's attendance with Octopus cards.

The sky appears to be the limit for Octopus, but the company still has a few challenges that it must solve. Foremost are the operational costs and the technology itself.

With each Octopus card costing HK$30 to produce and the infrastructure to support over 8 million transactions per day, the back-end operational costs are enormous. Many of the millions of tourists who visit Hong Kong annually now use Octopus cards to get around. This is great for visitors, but the cost of activating and then cancelling the cards that are used for one or two days is substantially higher than the income Octopus earns from such short-term usage.

"The cost of these cards, particularly the supporting infrastructure and administration costs, surprises many people. As we only receive a few cents per transaction, the return on investment can take some time," he says.

To solve this problem, Octopus is exploring various options for short-term usage cards. Recently, the company started selling souvenir cards to tourists and special edition cards to the general public instead of loaning them with a HK$50 deposit. It has also started offering chips embedded in watches for the elderly and children.

"We are also encouraging users to sign up for Automatic Add-Value Service with one of the 19 banks that offer the service. This gives added benefits such as lost card protection and the convenience of not having to top-up manually. This makes everyday life easier for our cardholders," Mr Tai says.

The company is also exploring with retailers how they can use the card to operate loyalty or benefit programmes. With most people having over a dozen discount or VIP cards for various shops, restaurants or clubs, carrying them all when they go out is impractical. Embedding them on an Octopus card allows users to basically carry hundreds of VIP or loyalty cards, making them easier for shopkeepers to track their usage and freeing shoppers of bulging wallets. Internet, mobile payments, and Radio Frequency Identification (RFID) are all new areas in which Mr Tai says Octopus can excel.

Within a few years, he expects Octopus to 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.

"Payment for all goods and services could also be as simple, not just in Hong Kong, but around the world," he predicts.