Why MTR is looking to upgrade its fare collection system

July 17, 2018 14:06
A file photo shows an MTR employee assisting a customer standing near ticket machines inside a rail station. Hong Kong’s railway operator is now seeking to enhance its electronic fare payment systems. Photo: Bloomberg

Octopus cards have become an integral part of the lives of Hong Kong people after the stored-value product was launched in the city almost 21 years ago. Over the years, the smart card has seen an expansion in applications, and is now being used for non-payment purposes as well, such as registering attendance at schools and controlling access to residential and office buildings.

However, the bread and butter for Octopus Cards Ltd, the entity that operates the smart cards, comes from its usage for public transport payments -- particularly for the mass transit railway.

But now some of that business is in danger of getting eroded as MTR Corp, the local rail operator, is seeking to broaden its fare collection mechanisms. 

MTR announced recently that it plans to facilitate QR code based payments for rail passengers, ending a virtual monopoly for the Octopus card system in relation to collection of fares. 

The railway operator has invited expressions of interest from tech firms for implementing a new electronic payment system at existing fare collection gates at MTR stations, a move that will allow passengers to fare for their journey using QR codes.

According to information posted on its website, MTR plans to introduce QR code based payments directly at its existing Automatic Fare Collection (AFC) gates. Passengers will be required to pre-generate a QR based transit code prior to entering/exiting the paid areas of the MTR stations.

The QR code should be presented at the entry and exit gates, and the information collected will be used for journey construction and fare calculation. 

Tenders will be invited from interested parties, with the eligibility norms being that they should possess a Stored Value Facility License or be a Payment Card Scheme Operator recognized by the Hong Kong Monetary Authority.

The contract will comprise two elements: appointment of an exclusive partner to build the electronic payment system at the existing AFC gates, and submission of a proposal to use their QR code payment services at the gates.

Going by the announcement, it becomes clear that MTR has set its sights on a major revamp of its fare collection system, accepting new electronic payments methods rather than just single journey tickets and Octopus Cards.

From the passengers’ perspective, it means there will be no need to have an Octopus card on hand for a journey on local trains, if MTR’s new fare collection system supports all the mainstream contactless payment methods such as Visa payWave and MasterCard PayPass, or mobile payment means like Apple Pay, Samsung Pay and Google Pay.

The new payment system will offer more convenience to passengers while helping MTR to cut staff involved in duties such as handling single journey ticket machines or providing change at customer service counters.

The deployment of new electronic fare payment system may take some time as MTR will accept tenders from qualified interested parties for the application of QR next month. It may take a year at the minimum to develop a suitable system for the high-passenger-volume rail network. Equipment installation and trials would probably take another year after that.

Given this, Hong Kong people may need to wait at least two years to enjoy more fare payment options at MTR stations. But when that happens, we would be able to say that the systems have truly moved into the 21st century.

As Hong Kong strives to become a "smart city", mobile payment service providers and credit card issuers would be interested in getting a pie of the public transport payments business.

The segment is attractive not only because of the potential revenues it can generate, but also due to the exposure it will create for the firms.

According to media reports, Visa, UnionPay, AlipayHK, WeChat Pay HK and Octopus O!ePay had participated in the prequalification process for the MTR tender in May. They may be able to submit a formal tender next month if they get qualified.

Among various parties, WeChat Pay HK has said it is proactively promoting mobile payments in Hong Kong, while AlipayHK has stated that it had internal discussions in relation to public transport payments in the city.

MTR's plans to enable QR code based payments come as no surprise as the railway operator has been facing pressure from mainland visitors who keep inquiring about QR code facilities during their trips here.

Mainlanders have got used to that payment method in China, and have found it very convenient. They don't need to queue for physical tickets. Instead, they can just show a QR code in their smartphone, swipe over the sensor, and get into the train. The fare will be automatically deducted from their linked mobile wallets.

Compared to China, Hong Kong has been a laggard in adoption of QR code based payments. In January, a QR code-based payments system was implemented at selected Shanghai subway stations. The system lets passenger pay for fares using China UnionPay or Alipay.

Due to the system's success, the quick response code program will be up and running in all Shanghai Metro Stations by the end of 2018. Likewise, such systems were announced earlier in Beijing, Hangzhou and Shenzhen.

Elsewhere in the Greater China region, Taiwan High Speed Rail had implemented QR code to its mobile ticket-booking app as far back as in 2011, allowing passengers to use such code to pass through AFC gates.

Now, as Hong Kong's MTR prepares to launch its own new initiative, we can only wait and watch if the railway operator, which operates one of the world's busiest commuter rail networks, manages to catch up and offer a smoother ride for its passengers.

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EJ Insight writer