Hongkongers now have various ways to pay for goods and services — cash, credit card or Octopus card. But when they shop online at Alibaba’s Taobao or Tmall, they prefer to use the Alipay mobile wallet because it is deeply integrated with the e-commerce platform.
AlipayHK aims to be one of the city’s leading mobile payment platforms, and it is rapidly expanding its coverage from shops and restaurants to public transport systems such as minibuses and the MTR.
That puts a lot of pressure on the Hong Kong-born Octopus to defend its market share as the service has been taking small, slow steps in exploring its huge online potential.
Octopus Holdings on Monday launched a virtual prepaid Mastercard on its O! ePay mobile wallet. The O! ePay Mastercard is the world’s first reloadable virtual Platinum prepaid Mastercard, which enables all O! ePay customers to have a seamless global online shopping experience through their Mastercard account.
But this card is not a credit card: customers need to put money into their O! ePay account before they could use it to shop online.
Octopus is a stored value smart card that is mostly used in public transport, retail stores andrestaurants. However, due to its technical limitation, it cannot be used easily for online transactions.
The Octopus card and the O! ePay fund transfer account are two different products without a direct relation to each other. It’s not the same as Alipay, WeChat Pay and other mobile payment platforms, which can be used both online and offline. Octopus can only be used offline.
That’s the pain point for the Octopus card. Its dominance as an offline payment platform cannot be shifted to the online world, even with the O! ePay service. For one thing, consumers cannot use their Octopus card to fund their O! ePay account; they have to manually fund the O! ePay account to use the service.
The partnership with Mastercard will help Octopus in tapping the fast-growing online shopping payment sector.
But for many Hongkongers, it is more convenient to just use their credit card or PayPal to pay online. Or if they are worried that their personal information may be stolen on the internet, they will simply refrain from any online transaction.
Using a new virtual Mastercard may not be the best solution for Octopus to build up its online exposure. It would just be another prepaid payment card in the market.
The Octopus card owes much of its success — in fact, its very existence — to MTR Corp. and the city’s other leading transport operators, which adopted it as their major payment system.
Since its launch in 1997, the Octopus has been the dominant fare payment method for the city’s public transport system. But as new technologies emerge, the card is no longer the most advanced payment platform in the market.
The introduction of NFC and QR code payment systems has posed a huge challenge to the Octopus card. Currently, local public transport operators are considering or are set to introduce other mobile and digital payment methods for passengers on top of cash and the Octopus.
AlipayHK won a contract for an automatic fare collection system for MTR last year and is planning to roll out a QR code-based setup for the payment of MTR fares next year.
Such a payment method would be attractive not only to local commuters but also to mainland visitors who no longer have to buy a physical card or pay cash to ride the MTR.
This development would further erode the market share of the Octopus.
The Octopus card is also lagging behind other payment systems in exploring the mainland market as they have yet to forge partnerships with mainland payment firms.
The physical debit or credit card is no longer a must in the digital world. In London, for example, Oyster card users can incorporate their card into Apple Pay or Google Pay. Cardholders can just swipe their phone for payment.
In Hong Kong, Octopus is partnering with Samsung Electronics for the launch of a Smart Octopus mobile travel card. But since other smartphone brands cannot join the partnership, the use of the card would be very limited.
In fact, Octopus may need to develop a new product that can be used for payment both offline and online. In fact, MTR will launch a tender in next few months to invite vendors to install a fare payment sensor for NFC devices.
Such a system would allow MTR passengers to directly use their credit card for fare payment; no need to recharge and use their Octopus card. The service is expected to be ready by 2022.
After losing its dominance in the city’s public transport fare collection business, Octopus needs to review its core competency and think how it can continue to survive and thrive in the digital era.