Successful Payment Systems - Global Case Studies Part 1

Today we will look at Octopus Card System from Hong Kong, IMPS (Immediate Payment Service) from India and Suica – FeliCa from Japan.

In this two part series, we will discuss about payment systems that have been extremely successful in various parts of the world. The metrics we have taken is that of "scale" and "impact". One or more of the following factors can be seen as common threads across the success stories:

1. Fundamentals are Important – Merchant acceptance and adoption is important if you want to succeed. Can you lower the interchange fees?

2. Real-time payments not just faster payments. A truly interconnected system; most of the countries are now looking for such payment systems.

3. Consumer Adoption - NFC growth in the Scandinavian region and Japan took place because of the focus on consumer education, availability of compatible devices, acceptance infrastructure and integration of loyalty and reward points

4. Collaboration – Meaningful ways of working together.

Octopus Card System (Hong Kong)


Octopus is an electronic payment system using a contactless smart card known as Octopus which includes Octopus cards and products. Octopus can be used to make payments on public transport systems and at a wide range of retailers and facilities.

The Octopus card was introduced in Hong Kong back in 1997. Over 24 million Octopus cards are in circulation today.

The contactless smart card was initially conceived to allow commuters to pay at public transport systems, but since its inception, the card’s usage has expanded widely.

Over 40% of the total usage is generated from the retail segment.

Where is Octopus used?

The card can now be used at over 15,000 retail outlets and 6,000 service providers, right from eateries, convenience stores and supermarkets to vending machines, kiosks, parking machines, etc.

Transaction volume through Octopus card

Octopus card’s transaction records give a clear indication of its immense popularity.

Over 13 million transactions occur each day through Octopus cards with the transaction value crossing $18 million.

More than 67,000 Octopus readers exist in the market.

Over 1.4 million customers currently enjoy the hassle-free Automatic Add Value Service provided by over 20 financial institutions

In addition, there are over 3.1 million registered Octopus accounts under the widely adopted Octopus Rewards Programme, allowing members to earn rewards regardless of their payment means, and redeem them as cash at around 20 participating merchants.

Success factors

- One of the success factors is the interchange rate - Octopus for merchants is sub 1%. This is well before the new EU rates and Durbin act.

- A closed system and a high transaction volume have helped to bring down the processing costs per transaction.

- A simplistic, efficient clearing process and standardized payment method.

- A multipurpose micropayment network.

IMPS (Immediate Payment Service), India

What is IMPS?

IMPS offers an instant, 24X7 interbank electronic fund transfer service through mobile phones.

This facility is provided by NPCI through its existing NFS switch.

The eligible criteria for the banks who can participate in IMPS is that the bank should have approval from RBI for a mobile banking service.

How does IMPS work?

Step 1: When you make an IMPS transfer, the sender mobile first sends this information to the sender bank, which checks the data; whether your MMID is correct or not and if it matches with other details it has in its system.

Step 2: If it’s all correct, it debits the money from your bank account and transfers this to the NCPI server, which then transfers it back to the receiver bank. The receiver bank goes about checking everything again and then sends the status of the whole transaction to NCPI, which passes it back to the sender bank.

Step 3: Both the receiver and sender are then updated about the transaction through SMS.

IMPS has grown substantially, with transaction amounts going up 5x in the last year to about $1.6 B per month.

Success factors

- IMPS fund transfers are real time. IMPS takes less than three seconds to get the credit reflected in the beneficiary’s account.

- IMPS works 24X7. That means if you feel like transferring funds in the middle of the night, IMPS is the only way to do it. And guess what, it’s transferred in real time.

- IMPS also supports fund transfer over SMS.

- To the bank, it’s a fraction of a cent per transaction charged by NPCI.

Suica – FeliCa (Japan)

FeliCa is the most popular contactless payment system in Japan. Developed by Sony, it is a type of RFID system but quite similar to NFC in nature and compatible with NFC devices as well. Speaking of terminals, FeliCa-based terminals have been placed at over 1 million places while MasterCard has announced the deployment of 400,000 PayPass based terminals over the years.

Suica is a popular electronic and mobile ticketing and e-cash system in Japan.

Suica: Suica is a contactless smart card based on Felica which is being used by Japan Rail for fare collection at their gates. These cards are supported across vending machines, kiosks and retail chain stores as well.

Mobile Suica: Mobile Suica is the representation of the Suica card in a mobile device featuring FeliCa.

39 million Suica cards have been issued

Around $10 billion worth of annual transactions

3 million+ commuters use it on their phones and 75 million transactions are processed at 177,630 stations and shops monthly.

Success Factors of Suica

- Large scale adoption of NFC technology in Japan.

- Multipurpose payments network: Suica cards find a wide use for transportation fare as well as for general purchases. It is accepted at large number of point-of-sale systems, including popular chains such as am/pm convenience stores, Pronto Coffee Shops, and McDonald’s restaurants.

- Strong collaboration with mobile network operators.

- Highly secure payments system: It has been certified under ISO/IEC15408 EAL4, an international standard for security evaluation.

- Although Mobile Suica was originally free, it now costs 1,000 yen a year, which is quite a low price to pay.

Japan has the largest number of NFC-enabled POS (>1 million) in the world.

There are more than 70 million NFC-enabled devices in Japan

In part two of this series, we will discuss about two biggest mobile payments success stories - One from the Scandinavian Countries and second being from G3 Immediate Payments (Singapore).

Note: I presented these case studies at Payments Innovation Summit in San Francisco last month and was asked to publish it as an article as well.