Provisional Legislative Council
Panel on Transport

Operation of the Octopus


    1.1 The Octopus common ticketing system began service to the public on 1 September 1997 with five participating transport companies, i.e. the Mass Transit Railway Corporation, Kowloon-Canton Railway Corporation, Kowloon Motor Bus, Citybus and Hongkong & Yaumati Ferry.

    1.2 Initially the Octopus can be used by passengers of MTR, KCR East Rail, LRT and its feeder bus routes, cross-harbour services of KMB and Citybus, and regular commuters on the Ping Chau Outlying Island route of Hongkong & Yaumati Ferry.

    1.3 In the future it is anticipated that all KMB and Citybus routes will have the Octopus equipment and that most, if not all, of the other public transport modes in Hong Kong will join the scheme.

    1.4 Some 3.75 million Octopus have been procured for sale to passengers and over 5,000 separate pieces of Octopus equipment are in operation. The Octopus cards themselves are "contactless" and only need to be placed momentarily within 10cm of the target or processor to have the transaction completed. Unlike the old Common Stored Value Tickets (CSVT) which were captured after the last ride, the Octopus cards are retained by the owner who needs to recharge the card once its value becomes negative.

2. Composition Structure of Creative Star

    2.1 The five transport operators set up a separate limited company known as Creative Star. This is a joint venture with shareholdings in proportion to the anticipated initial usage of the Octopus on the transport operators' systems. Creative Star then entered into a Service & Management Contract with MTRC for development and operation of the system. Thus Creative Star is really only a convenient legal entity for owning the common assets (including the smart cards themselves and the central computer system) and for providing a convenient forum for making joint decisions regarding the Octopus which affect all the transport operators.

    2.2 Creative Star has been set up as a non-profit making company. The expenses it incurs primarily through the cost of the Service & Management Contract and depreciation of its assets must be met from transaction fees levied on the transport operators for each usage of the smart card. The transport operators have agreed that the costs and revenues of Creative Star can be released on an annual basis to show that it is a non-profit making company.

3. Advantages of the Octopus

    3.1 There are a considerable number of significant advantages of the Octopus system for the travelling public in Hong Kong, including -

  1. It will be widely applicable on most, if not all, of the public transport modes so that customers may carry only one payment card.

  2. It eliminates the need for having the correct coins for payment on any transport modes.

  3. It has the convenience of being usable without even withdrawing the card from the wallet or handbag.

  4. It has significantly higher levels of reliability than the CSVT.

  5. It has significantly higher levels of security than the CSVT.

  6. More flexible recharging methods.

  7. Lower long term costs for use on railways.

  8. Allows possibilities for through fares within companies or across companies which could ultimately lead to a much more efficient public transport system in Hong Kong.

  9. For personalised Octopus cards, passengers can recover the remaining value even if they lose their cards.

4. Deposits

    4.1 In prior-to-launch surveys conducted by Creative Star, a majority of the respondents accepted the deposit provided that -

  1. it was refundable;
  2. it was necessary; and
  3. it was pitched at a reasonable level.

4.2 There are two reasons for requiring a deposit. Firstly, the Octopus itself costs around $30 (compared to the CSVT costing only $1). It would be irresponsible of the transport operators through Creative Star to issue smart cards without a deposit as this would ultimately mean that many more cards were used and ultimately those passengers taking good care of their cards would be cross subsidizing those who lost them. Secondly, the Octopus allows a temporary negative value to enable a passenger to finish his last journey even if the remaining card value is not sufficient to pay for it. This negative value is then carried forward when a customer recharges the card. For example, if there is a negative value of $15 and a customer adds $100, then the remaining value after this recharging begins at $85. If there were not to be a deposit, then a customer would simply throw away a smart card with this negative value and buy a new one.

4.3 Level of Deposit - The worst situation for the transport operators (and ultimately for the other customers who would need to provide the cross subsidies) would be when a customer loses a card which has the maximum negative value of $35 contained therein. In this case, the loss, including the card manufacturing cost, would be $65. The transport operators in trying to balance the objective of keeping the deposit as low as possible, but on the other hand protecting against wasteful losses, decided to set the deposit at a lower level of $50. The transport operators, through Creative Star, have also stated publicly that this level of deposit should be able to remain for several years.

4.4 Interest on Deposit - It is important also to stress that because the deposit is refundable, the effective cost to an Octopus user is around $3 per year in lost interest. On the other hand, Creative Star effectively receives this interest to cover part of the transaction costs. It is also noted that there are no other costs associated with the Octopus, unlike other payment methods, including credit cards, ATM cards and the automatic tunnel toll systems which have monthly or annual fees.

4.5 Autopay - Creative Star will also allow customers to automatically add value to their Octopus and subsequently to charge the upgraded amount to the holder's credit card account. For these autopay passengers, since there is no chance of a negative value, the deposit will be set at $30. In addition, Autopay cardholders receive free personalisation of the cards, i.e. the $20 personalised card processing fee will be waived.

5. Progress To Date

    5.1 At present the Octopus is purely a supplementary or alternative method for paying the transport fares on all of the different participating modes. In this free-choice situation, by mid October some 1.9 million Octopus cards had been sold and the weekday usage had reached about 1.7 million. Already around 50% of the MTR frequent users were using the Octopus rather than the stored value ticket.

    5.2 The attached graph shows the usage of the smart card for the various transport operators.

6 .Teething Problems

    6.1 For such a complex, pioneer system like the Octopus, relatively few problems have been experienced. The main problem areas affecting front end equipment were as follows -

  1. Add Value Machine (AVM) Availability - Problems with the AVMs involved both card retention and note acceptance. In the case of card retention, mechanical problems of the card receptacle have already been fixed. An intermittent software problem still exists. However, a software fix is being tested.

    The note acceptance problems are due to 1997 note printing quality and specification changes. Sample problem notes are now with Creative Star's note acceptor manufacturer for reprogramming to accommodate variances and all notes should be accepted by mid November 1997.

    Fortunately there are relatively few new 1997 notes with problems and surveys indicate that about 90% of notes which are presented by customers are accepted first time.

  2. Double Deduction Off Octopus on LRT Bus Equipment - Software bug found and fixed within the first week.

  3. Gate Operation - If passengers move their Octopus too rapidly across the processor, the transaction may be incomplete. On the next presentation of the card the software is supposed to reconstruct the data on the card and complete the transaction. Initially this was not happening correctly but revised software has improved this re-try process.

  4. Lack of Education on Add-Value and Card Operation - Many of the early problems were simply passengers not familiar with the operation, e.g. swiping card too fast More information, including advertisements, has been disseminated and deployment of over 200 staff to help passengers use the system on MTR, KCR and LRT, combined with passenger experience, have improved the situation considerably.

7. Reloading

    7.1 There are several loading methods for the Octopus. Firstly cash can be paid at Customer Service Centres of the MTR, KCR East Rail and LRT. Secondly, add-value machines are located on the MTR, KCR and LRT stations which currently accept $50 and $100 notes and which, by the end of November, will also accept EPS electronic funds payment method. Thirdly, an autopay arrangement is being set up so that customers can automatically have additional value added to their Octopus and subsequently their credit card account can be charged. So far, Bank of East Asia has agreed to provide this autopay service and one other bank has also indicated they will.

8. Refunds and Malfunctioned Cards

    8.1 The handling of refunds or malfunctioned cards is similar to that which have been employed for CSVTs in the past. However, with the development of the Octopus, an "on-line enquiry" is currently under way so that if a malfunctioning smart card is presented at any Customer Service Centre, then the remaining value on the card can always be determined and thus an immediate refund or a transfer of any remaining value onto a new Octopus, can be carried out. All of the transport operators will replace any malfunctioned card with a new one provided the damage has not been caused by the customers. A refund of the deposit will be made on any card returned without damage.

9. Security

    9.1 There are effectively three different levels of security to ensure that there is virtually no chance of any breach of the Octopus system. The first level comprises the technical complexity of trying to break the Octopus coding. The second level involves a tracking of the usage of the cards to ensure that there are no illegal transactions being undertaken, and if any such transactions were ever found, then the offending smart card can be blacklisted and prevented from further use. The third level of security is that the Octopus can only be used in Hong Kong, and if any party were ever able to break the first two levels of security, then selling outlets would need to be set up in Hong Kong. It is believed that any such illegal operation would quickly be discovered and furthermore, potential customers would be deterred from purchasing illegal smart cards, knowing that they would be quickly found out by the tracking system.

10. Publicity

    10.1 Pre-sale and Launch - To inform people of the sale of the First Edition Octopus and the pre-sale of the normal anonymous Octopus on 17 August, station level publicity was widely used. When it came to the official launch on 1 September, TV commercial and print advertisements were adopted.

    10.2 Education and information - There is a common user guide summarizing all relevant information about the Octopus. The print quantity is 3.5 million and every purchaser of the Octopus will be given a copy of this user guide. Potential purchasers can also obtain a copy of the guide. A hotline for enquiries has also been provided.

    Meanwhile, KCR Light Rail, Citybus and HK Ferry have their own brochures outlining their own specific information. A video tape is being run in each KCR East Rail station explaining to customers how to use the card in their system. The content includes 1st class application and at a later stage the Lo Wu Quota. KCR Light Rail also has a video of its own outlining usage of the Octopus in the Light Rail System for school talks and exhibitions.

    MTR produced an educational TV Commercial which was shown on TVB Jade and ATV Home informing viewers on how to use and reload the Octopus in MTR. A video tape with similar content is being shown in MTR stations. The TV Commercial will air for three weeks from 20 September 1997 with heavy prime time exposure. MTR is also planning to have a series of 30-second stories broadcast in Commercial Radio in the latter half of October telling people how to use the Octopus in MTR.

Creative Star
17 October 1997