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SUCCESSFUL ADOPTION OF SMART CARD AND E-PAYMENT SYSTEM
Proceedings of the 11th Annual Conference
of Asia Pacific Decision Sciences Institute
Hong Kong, June 14-18, 2006, pp. 281-284.
SUCCESSFUL ADOPTION OF SMART CARD AND E-PAYMENT SYSTEM: OCTOPUS CARD IN HONG KONG
Pui Yuk Chan, Xinping Shi
Department of Finance and Decision Sciences,
Hong Kong Baptist University, Hong Kong
EMAIL: ,
Sheung Man Yuen
School of Professional Education and Executive Development,
The Hong Kong Polytechnic University, Hong Kong
EMAIL:
ABSTRACT
Smart card technology remains novel for consumers and merchants, in spite of several attempts by financial institutions to deploy the technology on wide scale bases. VISA and MasterCard launched smart card trials in Hong Kong throughout 1990s, the trials were deemed a failure and subsequently cancelled. One exception is the Octopus card. Octopus has become one of the world's most successful electronic cash systems, with over 13 million Octopus cards in circulation and over nine million transactions per day, and nearly 300 service vendors in Hong Kong [7]. The operator of the Octopus system, Octopus Cards Limited, a joint venture between Mass Transit Railway Corporation (MTRC) and other transport companies in Hong Kong such as Kowloon-Canton Railway Corporation (KCRC), Kowloon Motor Bus (KMB), and CityBus, has won a number of contracts to extend Octopus-style systems to the Netherlands and Changsha, China. In this paper, we explain why the Octopus card has been successful in Hong Kong and propose a research model for investigating the consumer acceptance of the system.
WHAT IS AN OCTOPUS CARD?
The Octopus card is a rechargeable contactless stored value smart card, and it is used for electronic payment in online or offline systems in Hong Kong. Originally, it was launched in September 1997 as a fare collection system for Hong Kong's mass transit system, the Octopus card system has grown into a widely used electronic cash system used not only for virtually all public transports in Hong Kong, but also for making payment at convenience stores, supermarkets, fast-food restaurants, on-street parking meters, car parks and many other point-of-sale applications (e.g. service stations and vending machines). In addition, the system is also used for access control to offices, schools and residential apartments. It can even be used to donate money to charities. Using a card involves simply holding the card in close proximity above, or on, an Octopus reader, and cards can be recharged with cash at add-value machines or over the counter in shops (notably 7-Eleven and Circle K), or directly through credit cards and bank accounts.
The card was previously exempted from the definition of “multi-purpose card” under the banking ordinance due to its restricted range of uses and it is also under the supervision of Hong Kong Monetary Authority. Octopus Card Limited was authorized to become a deposit-taking company in April 2000. Such arrangement broadens and expanded the use of the medium, including non-transport related services and also as a form of cash card that is expected to enhance convenience for cardholders.
SUCCESSFUL FACTORS OF OCTOPUS CARD
A large potential customer base
On average, over than 4 million people take public transport system such as MTRC, KCRC, buses, ferries from home to offices or schools every day. In the past, while one might be able to use the old magnetic strip ticket with the MTRC and the KCRC, people would still have to prepare coins for the connecting services (e.g. buses). It was difficult to expand the old MTRC and KCRC system to the other modes of public transport because, of their bulky set up, which was more suitable for turnstile-based systems. To always remember to have sufficient coins in one’s possession is not only a chore but also literally a burden – particularly to those who need to travel in a short distance. The establishment of Octopus Card has been solved the pervious problems. This approach had proven to be a success because one only needs to use one card for all modes of transport. Customers and transport operators can earn the advantage of using the card.
A closed system with high transaction volume
One of the critical success factors for the Octopus system is having a captive market. The existence of alternatives often overcame technologically more advanced but less mature smart card systems. The Hong Kong passenger transportation system, like many transportation systems around the world, is a closed system. This means a passenger is conformed to the payment options offered by the operators. In addition to being a closed system, the Hong Kong passenger transportation system is a high transaction volume system. It was estimated that at least 10 million passenger journeys were made each day on Hong Kong’s wide variety of public transport services. A closed system and a high transaction volume have helped to bring down the processing costs per transaction, and operators are confident that the infrastructure and system in the return of investment in due course.
Cooperation of the stakeholders
Ubiquity is very important for Octopus card in order to realize full benefits of the card with high volume usage and availability. Although mass transit railways systems such as MTRC and KCRC were firstly launched and orchestrated the Octopus systems, other public transports services are willing to participate in the program due to the simplistic and efficient clearing process and standardization of payment method. These benefits helped these companies build trust to each other on the Octopus system.
A multi-purpose micro payment network
Octopus cards are not only paid for the transportation fares. It can be used to pay fares or to make purchases for nearly all Hong Kong transportation systems, and at many stores in the city, most notably, 7-Eleven, McDonald's, convenience stores, other fast food restaurants and Starbucks coffee shops. A large number of vending machines and self-service kiosks in Hong Kong accept Octopus as payment; these range from beverage vending machines to payphones and photo-booths — they can even be used to purchase travel insurance (for HK$10 per person, from the Bank of East Asia). Ricoh, Minolta and Fuji Xerox offer photocopiers that support payment by Octopus. Octopus cards become a famous a payment method for small purchases in daily life.
BASIC CONCEPT OF INNOVATION ADOPTION, RESEARCH MODEL & HYPOTHESIS
With accelerated business competition and the popularity of Octopus card use, there is an urgent need to understand the factors that would entice user’s to use Octopus card. Comprehending the essentials of what determines user’s acceptance of Octopus card can provide great merchant insights into developing effective strategies that will allow enterprises to remain competitive and hold their market. Hence, we adopted the extended technology acceptance model (TAM2), integrated it with the innovation diffusion theory (IDT), perceived risk, and validated the factors that determine consumer Octopus card acceptance.
Technology acceptance model
The theory of reasoned action (TRA), proposed by Fishbein and Ajzen [4], is a well-established model that has been used broadly to predict and explain human behavior in various domains [2]. Davis proposed the technology acceptance model (TAM) based on TRA; it has been tested and extended in several research [3,6,16]. The original TAM consisted of perceived ease of use (PEU), perceived usefulness (PU), attitude toward using (ATU), behavioral intention to use (BI), and actual system use (AU). PU and PEU are the two most important determinants for system use. The ATU directly predicts users’ BI which determines AU.
Figure1. Proposed Research Model for the Octopus Card Acceptance
Venkatesh and Davis [15] proposed an extension, TAM2, which included social influence processes (subjective norm, voluntarism, and image) and cognitive instrumental processes (job relevance, output quality, result demonstrability, and PEU), but it omitted ATU due to weak predictors of either BI or AU. This is consistent with the prior research finding by Taylor and Todd [13,14]. Their research indicated that both social influence processes and cognitive instrumental processes significantly influenced user acceptance, and that PU and PEOU indirectly influenced AU through BI. Based on this, the following hypotheses are proposed.
H1. Behavioral intention to use has a direct effect on actual use.
H2a. Perceived ease of use has a direct effect on behavioral intention to use.
H2b. Perceived ease of use has a direct effect on perceived usefulness.
H3. Perceived usefulness has a direct effect on behavioral intention to use.
Innovation diffusion theory and TAM2
Innovation Diffusion Theory (IDT) is another well-known theory proposed by Rogers [10]. In recent decades, IDT has been widely used for relevant IT and IS researches [9, 12]. IDT includes five significant innovation characteristics: relative advantage, compatibility, complexity, trial ability, and observablity. These characteristics are used to explain the user adoption and decision making process. They are also used to predict the implementation of new technological innovations and clarify how these variables interact with one another. The central concept of innovation diffusion is ‘‘the process in which an innovation is communicated through certain channels, over time, among the members of a social system.’’[10]
However, research has suggested that only the relative advantage, compatibility, and complexity are consistently related to innovation adoption [1]. Relative advantage is similar to perceived usefulness, whereas complexity is similar to perceived ease of use. Compatibility is the degree to which the innovation is perceived to be consistent with the potential users’ existing values, previous experiences, and needs. High compatibility will lead to preferable adoption.
Integrated factors’ are TAM and IDT are extremely significant in mediating the acceptance of an innovative product or service. Some researchers indicated that the constructs employed in TAM are fundamentally a subset of the perceived innovation characteristics and, such integration could provide an even stronger model than either standing alone. Therefore, the following hypotheses are proposed.
H4a. Compatibility has a direct effect on perceived usefulness.
H4b. Compatibility has a direct effect on behavioral intention to use.
The theory of perceived risk
The theory of perceived risk has been applied to explain consumer’s behavior in decision making since the 1960s [11]. The definition of perceived risk has changed since online transactions became popular. In the past, perceived risks were primarily regarded as fraud and product quality. Today, perceived risk refers to certain types of financial, product performance, social, psychological, physical, or time risks when consumers make transactions online [5]. Octopus card users are still worried about security features and accuracy of the systems. [8] Therefore, the following hypothesis is proposed:
H5. Perceived risk has a negative direct effect on behavioral intention to use.
METHODOLOGICAL ISSUES OF THE RESEARCH
In the next stage of this research, we will follow the theories specifically alone to develop indicator variables and send out survey questionnaires to customers to evaluate the degree of adoption of the card. With a better understanding of the issues in adoption, we will be able to have a clear picture to understand how octopus cards make operations an excellence.
CONCLUSION
The Octopus experience in Hong Kong offers rich lessons that can extend to the wider e-commerce project. Its success suggests that a system so “smart” that it makes the human input process quick and easy will be embraced by stakeholders. This paper allowed us to explore how and why the system was successful. It also revealed that companies could make use of database as a strategic weapon and new marketing techniques allow them to benefit from savings and increased revenues.
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