Contactless Payment: From Octopus to Digital Wallets

25 August ,2016

Around October last year, the People’s Daily published an article titled “Hong Kong’s Crisis of the Octopus Card, a sirens’ call for whom?” The gist of the article goes: Hong Kong’s Octopus card technology used to be a role model for the country and the world, but it has been stagnant and stuck at the stage of physical cards and is lagging behind the more advanced means of electronic payment around the globe such as Alipay and WeChat Pay; the situation is indicative of the lack of diversity in Hong Kong’s economy, whose historical advantages it used to enjoy are being eroded gradually under the tide of globalization; and Hong Kong needs to boost its technological development and innovation to keep its edge, or risk being irrelevant. (Original article in Chinese:

Recently, the arrival of Apple Pay in Hong Kong has again triggered enthusiastic discussion and comparison with the local Octopus card. This calls for a discussion on the development of contactless payments in the Western world and the Mainland.

To begin with, contactless smart cards in foreign countries are at a similar technological level with Hong Kong’s Octopus Card, even though usage of these prepaid cards abroad is often restrained to fare collection for public transit. The adoption of these smart cards is intended as a means to enhance the capacity in processing the massive volume of passengers. The Toronto Transit Commission only began accepting Presto cards (Toronto’s equivalent of Hong Kong’s octopus card) for entry fare within the last couple of years, arguably because Toronto never have had the volume of passengers Hong Kong has. Presto card machines are still unavailable for TTC buses or stations located far away from downtown Toronto, meaning they are still dependent on token or cash payment. The usage of Oyster Card in London is similarly limited to public transport.

As for contactless credit cards, MasterCard in the United States concluded their market trial for PayPass in Orlando, Florida in September 2003, and has begun issuing MasterCard Paypass contactless credit cards through major financial institutions since 2005. American Express also introduced the contactless credit card - ExpressPay in 2005. VisaPay was not available in the market till September 2007; Banks in the United Kingdom brought in contactless credit cards in the same year, hoping to simplify the countless credit card transactions that are under £10.

By now, contactless payment technology has gone beyond prepaid smart cards and credit cards. With the rising popularity of digital wallets, mobile payment is now an available option for everyday users.

This change became apparent when Apple released Apple Pay in 2014. To be fair, Apple Pay is not the Western world’s first attempt at electronic wallets. Various companies like Google, Paypal, Wal-Mart, and Target all have their own attempt at digital wallets, but none of them have made as great an impression as Apple did on the market, who singlehandedly activated one million credit cards for Apple Pay in the first three day of its release. The success of Apple Pay is probably based on the critical mass of consumers that Apple has already achieved. Combined with Apple’s previous success with its payment mechanism in App Store, Apple Pay’s success was foretold. Even though Apple Pay can be considered as an extension of credit card consumption as it is linked to a credit card (or credit cards), mobile payment technology allows users to conveniently leave the door with an iPhone and keep their wallet and their numerous credit cards at home. Touch ID adds to that convenience by providing security measures in the payment process.

Yet this revolutionary means of transaction has long been present in Mainland China, and has been developed for use in a wide variety of settings. Alipay, which is often referred to as Paypal with Chinese characteristics, handles internet transaction as a third-party guarantor, and deals with finance and investment. Alipay can be described as a forerunner of internet banking in Mainland China. Another payment system WeChat Pay is designed to simplify payment and transaction process. As a result of its phenomenal flexibility and convenience, it has fundamentally reshaped how Mainland consumers spend and transact money. WeChat Pay allows users to transfer money to their friends, hand out lucky money (hongbao) at fixed or randomized amounts to their friends, pay merchants, and even make payment through the scanning of QR code. In major cities like Shanghai and Beijing, WeChat Pay’s presence is ubiquitous, be it global chains like MacDonald’s or self-hired individuals like taxi drivers. WeChat Pay is even used to pay salaries; transferring and collecting funds amongst friends and relatives are a piece of cake. Compared with Apple Pay, WeChat Pay has a much lower barrier of entry: regardless of whether you are a buyer or a seller, all you need is a smartphone with a built-in camera that supports WeChat to make or receive payment with your phone.

China seems to be leading around the world with its popular usage of mobile payment technology. Even Sweden still relies on credit cards and credit card readers although it is trying to phase out the usage of cash through legislation and policy. Western countries seem to be more sensitive about security issues with contactless payment, so in many places floor limits have been set for contactless transactions until recently. For example, the Eurozone generally uses a €25 limit. Signature or PIN verification is required for any transaction exceeding that limit. By comparison limits for WeChat payments are clearly more lenient. Limits for a WeChat Pay account (tied to a bank card) are 50,000 yuan per day and per transaction for tangible products and services and 3,000 yuan per transaction/6,000 yuan per day for intangible ones. Users who have registered with their real names can even make transfers up to 200,000 yuan per day.

WeChat Pay is the epitome of the Mainland’s civilian technological innovation in recent years. Its convenience and coverage is unmatched by any other mobile payment mechanism. Yet credit cards and octopus cards have taken root in Hong Kong for many years; they have supplemented cash usage and made up for its inconveniences. Also, there are security concerns around mobile payment, which explains its lack of popularity in Hong Kong. Octopus’ recent release of P2P “O!ePay” has been met with lukewarm reactions. Still, electronic wallets are increasingly available in Hong Kong. Only time will tell how the electronic payments sector will develop in our city.

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