Octopus extends its services in era of the smart card

PUBLISHED : Saturday, 22 July, 2006, 12:00am
UPDATED : Saturday, 22 July, 2006, 12:00am

HONG KONG BOASTS many superlatives - from the world's longest suspension bridge and busiest container port to the highest concentration of Mercedes-Benz cars.

But there is one record-breaker that affects all of us every day. The ubiquitous Octopus card that hardly anyone leaves home without is officially the world's largest smart card payment system.

More than 13 million cards are in circulation, a surprising number given that Hong Kong's population is only about half of that - though perhaps explained by the fact that everyone has probably lost at least one.

More surprisingly, 9.2 million transactions a day are processed with them, worth $25 billion a year, or $500 million a week.

Welcome to the smart card era. The easy, hassle-free Octopus introduced initially in 1997 to travel on public transport in Hong Kong has become an essential part of our daily life in the decade since.

Today it extends to car parks, fast food outlets, convenience stores, supermarkets, cake shops, wet markets, cinemas, vending machines, pay phones, leisure facilities and schools.

If you live in the New Territories, you can even use the card to pay taxi fares, with 20 taxis now pioneering the payment system.

Cindy Cheng, sales and marketing director for Octopus Cards, expects more taxis to roll them out in the near future.

It even has its own new loyalty programme, Octopus Rewards, allowing customers to earn and redeem reward dollars with their registered card, regardless of payment means.

On this common platform, businesses can offer tailor-made discounts or special offers without needing their own programme. More than 900,000 customers have registered for the programme, from retailers to clubs and cinemas.

The ingenious microchip-embedded card has collected a string of awards, including international recognition with the prestigious Chairman's Award in the World Information Technology and Services Alliance Global IT Excellence Awards.

As Octopus Holdings chief executive Eric Tai said: 'The award was not to Octopus alone, but to all Hong Kong people. Octopus is a Hong Kong success story.' He said the model that made life so much easier for Hong Kong 'could do the same for the rest of the world'.

'The Hong Kong system is recognised internationally as one of the most advanced smart card systems in the world,' said a spokesman for Australian-owned AES Prodata, which pioneered the payment technology.

As the world leader in adopting the cash-free technology, Hong Kong is indeed setting an example for the rest to follow.

A new subsidiary of Octopus Holdings is advising the Netherlands on the introduction of a similar smart card system for automatic fare collection.

Octopus has grown from an initiative forged by Hong Kong's main public transport operators to an independent company with global ambitions and a workforce of 200.

'Octopus provides new career opportunities as it has grown from serving six transport operators initially to more than 370 service providers now,' Ms Cheng said.

'More opportunities are today available in line with recent expansion in non-payment business such as our Octopus Rewards programme and overseas projects.

'Hong Kong is the home ground for Octopus to develop and pilot new functions and applications.

'When the reward system proves to be successful and mature, we can help other countries in implementing something similar.'

Approval has already been granted for merchants in Macau and Shenzhen to join the scheme.

Hong Kong's love affair with smart cards does not end with the Octopus. The new 'smart ID card' is also a world leader.

The territory-wide ID card replacement exercise commenced in 2003 and should be completed next year as part of the government's vision to 'move Hong Kong to the forefront of the hi-tech world'.

On the new card, personal details such as name, birth date, gender, residential status and conditions of stay for non-citizens are stored in the microchip and protected by encryption. The embedded computer chips also hold a digital template of both thumbprints.

Besides using them as simple IDs, the cards are now most obviously handy to bypass long immigration queues when leaving or entering Hong Kong. Smart card holders speed through self-service kiosks that match digital biometric data on the card against the cardholder's fingerprint image read by a scanner.

They can also be used as library cards, although a proposal to incorporate driving licences has been delayed and other potential day-to-day applications such as the ATM card appear a long way off.

Personal privacy issues have prevented such cards from being universally accepted in many countries.

Many also fear they are vulnerable to computer hackers. Local smart card hackers have already demonstrated their prowess in this field by producing bootleg smart cards to decrypt TV channels for pirated satellite decoders sold on the black market. Privacy activists warn that smart cards could be gilt-coated Trojan horses for snooping governments, terrorists and crooks.

But compared to many other countries, the transition to the smart ID card was relatively simple in Hong Kong. The cards have been a fact of life for decades, since being introduced in 1949 to help curb a flood of illegal immigration from the mainland.

Beyond the ID card, it is also fairly safe to say Hong Kong is a per capita market leader in the use of smart SIM cards for mobile phones, given that we have one of the world's highest penetrations of mobile phone use. But they have not been adopted so readily by the financial sector, where security is most critical. The industry's focus for the future is therefore greater protection against forgery with secure authentication to enhance security and performance.

Hong Kong's Advanced Card Systems (ACS), founded by electronics tycoon Denny Wong a decade ago, and now listed on the local stock market, has emerged as a leading global pioneer and manufacturer at the forefront of the smart card revolution.

With its constant introduction of new technology to address the security issues, the firm produces a wide range of high quality smart card reading/writing devices, smart cards, and smart card operating systems for more than 80 countries.

Its new ACR38 smart card reader has just been adopted by the Belgium government for its pilot national electronic identity card scheme.

Finally breaking into the financial sector, several Hong Kong banks have also adopted the firm's smart card readers for what is known as 'two-factor authentication' for secure e-banking.

In line with the Hong Kong Monetary Authority's guidelines, banks can use a combination of two different factors to verify a user's identity - the e-Cert embedded in a smart ID card and the e-Cert password which generates a digital signature for identity verification.

Nine local banks have so far adopted the system, including Bank of China (Hong Kong), Nanyang Commercial, Citic Ka Wah, Dah Sing and Bank of America (Asia), although many prominent institutions are adopting a more cautious approach.

However, ACS believes this trend is set to continue with 'vast business opportunities' opening for serious smart card and reader providers.

'Smart cards and readers are no longer limited to specialised applications,' a company spokesman said.

'They have become increasingly popular in many other areas such as banking, government ID cards and internet security. They have proven to add significant value to businesses by providing a more efficient, effective, reliable, and secure environment to streamline their operations. This has accounted for the rapid growth in demand.'

If current trends are anything to go by, the smart card market is set for exponential growth in the next few years.

But to achieve maximum potential, its future depends mainly on multi-applications and overcoming the mindset that smart cards are just for easy payment.