How MTR beat HSBC

In the battle for Hong Kong''s electronic money, a train company beats one of the world''s biggest banks.

This column is called Funny Money, and with the demise of Mondex in Hong Kong, the name could not be more appropriate.

Mondex was launched in Hong Kong by HSBC in 1997 as the ultimate e-cash to replace the paper stuff in your wallet. It came as a smart card, and boasted US military style encryption defences.

However, in a letter to cardholders a few days ago, HSBC announced that "as of 31 March 2002, the Mondex card programme will be discontinued."

This was HSBC's tacit admission that enough was enough. With so few Hong Kong people using Mondex (I have one that I have used once, purely as an experiment), the plastic smart card had evolved into a highly expensive HSBC canteen card - since bank staff were forced to use it even though no one else did.

I first wrote about Mondex in 1998. I described it then as impractical and unwieldy, a view that I haven't changed. It is simply too slow to use.

Conversely, I extolled the virtues of the MTR's electronic money card, Octopus, which now has around four million devotees. Its ease of use is the key thing. You just hold it near a terminal and the transaction takes places in less than a second. No passwords or anything.

HSBC quickly saw that a train company was beating it at its own game - dealing with money. HSBC may have printed Hong Kong's money for over a century, but it soon became clear to senior executives that the MTR was winning the electronic wallet war.

Amusingly, at one stage a senior figure in the bank complained to MTR's then-CFO, Clement Kwok, that if it didn't stop competing with HSBC in the money field, the bank would be forced to build a rival rail track to the airport.

Meanwhile, MTR had promised to keep the use of its Octopus card reserved for outlets beneath the ground or just outside its stations. The interpretation of this decree soon became flexible, however, as Octopus spread its tentacles first into 7-Eleven stores, and then McDonalds among other places.

HSBC's Mondex had made no such promises, but few retailers could be bothered to accept it, and no matter how much the bank spent on commercials of male youths spilling their change on the floors of HMV and thus missing the chance to win the girl, few Hong Kong punters agreed to pay the annual fee for the privilege of having one.

I still have mine, but only because I forgot to cancel it before it renewed itself each year (via a direct debit from my account that I apparently agreed to by signing up for Mondex).

Meanwhile, as the sole player left in the electronic money field, MTR can now expect to gain seignorage benefits. Profit derived from this will still be dwarfed by its rail and property income, but there are few train companies in the world that can boast such an interesting source of income.

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