Should Hong Kong's ubiquitous Octopus card spread its tentacles into the bill payment business? Last month, the card's owner and operator, Creative Star, was granted a deposit-taking company licence by the Hong Kong Monetary Authority, establishing the Octopus as the third multi-purpose stored-value card in Hong Kong after VisaCash and Mastercard's Mondex. The licence effectively un-shackles the Octopus from its exclusive role as a stored-value card used for paying for bus and ferry rides and trips on the MTR or the KCR, and enables it to be used outside of the transport business. Creative Star chief executive Rob Noble said the company would now begin its expansion trail by tying up with 7-Eleven stores within the next two months, and would target McDonald's outlets after that. But why stop at offering the card as an alternative means of making payments at convenience stores and fast-food outlets? Creative Star was set up in 1997 as a joint venture between five leading transport providers who collectively invested an initial HK$400 million to set up the contactless card payment system. Just two years later there were six million cards generating daily volumes of about HK$30 million, with Creative Star taking 1 per cent of the revenues to run and operate the system. That fee is set, says Mr Noble, to break even on the service to the joint-venture partners, and not to make a profit. But though the licence issued last month puts a new complexion on the card's original mission, Creative Star has no plans to go into active competition with banks in the payments business, adds Mr Noble. That decision will no doubt be greeted with sighs of relief in the industry. Data collated by the Nilson Report, an industry newsletter, shows there were 126.5 million transactions conducted with Visa and MasterCard in Hong Kong last year, worth US$14.67 billion. Add American Express, JCB, and Diners cards' and bills paid by cards totalled US$16.64 billion. Visa maintained its dominance in the local market with a card base that grew 9.8 per cent to 5.39 million cards, used for 100.74 million transactions worth US$10.7 billion. What these headline figures mask, however, is the declining share of credit in the payment equation, and the rapid growth in debit, or stored-value cards, which provide access to a cardholders' own money, as opposed to the riskier business to a bank of making credit advances. In the United States market over the 12-month period to last September, just 67.6 per cent of all Visa and Mastercard transactions were done on credit cards - down from 72.7 per cent previously. Debit cards, by contrast, increased their share of the number of transactions done on the two leading cards from 27.3 per cent to 32.4 per cent. Behind this switch from credit to debit and stored value lie concerns over increasing card delinquencies - which would inevitably accelerate if card issuers were ever tempted to aggressively grow their existing card bases. Worldwide, data show that having troughed at about 4.3 per cent of outstandings, credit unpaid 60 days after the original billing date is now trending upwards to 4.7 per cent. The trend in the card industry to supplying access to customers' own funds, or stored value, rather than credit, is clear. What of demand for alternative methods of paying bills? Hongkong Electric, for instance, has about 519,000 registered customers who last year paid electricity bills totalling about HK$8.7 billion. The method chosen by customers to pay those bills demonstrates how far off existing transaction cards are with their ultimate objective of displacing cash as the preferred method of payment. According to Hongkong Electric, 40 per cent of bills continue to be paid in cash at their pay-in centres, and another 15 per cent were settled by cheque. Of the remainder, 25 per cent of the utility's bills were paid via automatic debits from customer bank accounts; while the balance was spread between PPS (Payment by Phone Service), PET (Payment Express Terminal), automated teller machines, and the Internet. Confronted with the continuing burden of providing pay-in centres and the cost of cash-handling, Hongkong Electric was always on the lookout for additional payment methods, said a spokesman, and it would support expanding the functions of the Octopus card to include bill payments. CLP Power has 1.85 million customers, about 1.5 million of whom are domestic users. Billings for the year to September 30 was HK$22.98 billion, with just under half of those bills settled in cash at customer service centres. Towngas collected HK$4.7 billion from its 1.3 million customers last year - or about HK$190 a month on average from each customer - with a little more than two-thirds of those paying either by way of direct debit (38 per cent) or in cash at customer centres (30 per cent). Supplying dedicated payment kiosks at MTR stations - offering simple menu-driven commands to pay all of these bills via an Octopus card - would be a simple and comparatively inexpensive, according to Yeung Tat-wing, general manager of Spectra Technologies. Spectra at present supplies the cordless transaction terminals used at the point of sale by Hong Kong merchants. So, the potential is huge, the technology exists, why does Octopus not go into the card payment business in competition with banks? Mr Noble responds that the company's expertise is in transport cards and not in bill payments. Mr Noble concedes that somewhere down the track there will be one piece of plastic in a commuters' wallet which will combine the functions of the existing ATM card, a credit card, stored value, and the ubiquitous Octopus card. 'We have had some discussion with banks about that; but this will not happen in the short-term,' he says. But why join with banks if you could compete with them and provide an arguably better service to commuters?