The development of stored-value card payment systems

Now may be a good time to review how Hong Kong's electronic money system should develop.

While there are lessons on governance and risk management to be learned by Octopus and others from the failure of add-value transactions through EPS, it is becoming increasingly clear that whether there is a need for separation of the management of the platform and the issue of stored-value cards is an important issue to be considered and debated.

What the community clearly wants is the convenience of paying for as wide a range of goods and services as possible with the simple waving of a card on location. They probably do not mind paying a reasonable sum for that convenience, although obviously they would prefer not to have to. This payment could be in the form of interest forgone for the amount stored in the card, just as they have to forgo interest on the cash they otherwise would have to carry.

The community obviously also wants a card that is reliable and offers adequate protection of their financial interests. They probably do not mind choosing between different stored-value cards, if offered a choice, to suit their own preferences. For example, some people might want to use one card for multiple non-financial purposes, while others might be more interested in the convenience of uploading money easily and safely into the card from their bank accounts. Some might even like to have a variety of stored-value cards, as a new way of demonstrating economic status. Indeed, as a way of showing whether you have money, stored-value cards are arguably superior to credit cards because the latter involve borrowing money, although holding many credit cards at least shows that you are credit worthy.

But the community probably would not like, having chosen a card, to be forced to shop at certain locations, or travel only on certain buses, because only they had debiting facilities for that card. Similarly, providers of goods and services would obviously prefer to install just one card reader rather than several. In other words, there should ideally be just one common platform for a number of stored-value cards, both for the convenience of users and the efficiency of the system.

There is obviously a need for public debate and policy deliberation before these early views can be confirmed, modified or indeed rebutted, and new policy established if necessary. Leaving it as far as possible to the free market, which has been our approach, has produced a kind of monopoly in the provision of the platform for debiting value and in the issue of a multi-purpose stored-value card, in the form of Octopus, which despite its recent problems, has been very successful. It is of course possible that the lack of competition itself contributed to these problems, but the fact remains that what we now have in Hong Kong has the potential to be the most efficient electronic money system in the world. Perhaps the answer is to introduce competition into the card-issuing part of the business, while allowing the current single and common platform to develop and possibly expand into an essential piece of the infrastructure of our retail payment system. I have no pre-conceived idea on the ownership and management of the common platform, provided that there are adequate checks and balances, transparently observed and monitored, to protect the public interest.

While I am sure there will be many useful opinions expressed about various matters arising from the failure of EPS uploading of Octopus-card balances, perhaps this is also a good opportunity to consider whether to take a bold step forward.

Joseph Yam
30 August 2007

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