The Bottom Line.
In this Asia-Pacific Insight, new technologies expert Warwick Pearmund provides a snapshot of the Hong Kong Consumer payments industry for the year 2019. Pearmund’s analysis shows an important competition between major actors. “Whilst Hong Kong may lag in mobile payments adoption versus China”, he writes, the growth of mobile solution versus cash and card, will increase at pace.
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Snapshot of the Hong Kong consumer payments industry – 2019
[By Warwick Pearmund]
Consumer payments in Hong Kong has been a laggard space compared to other regional players, particularly China where widespread acceptance of mobile payments is a defining feature of the retail banking landscape.
Historically, as a global trading hub and free port Hong Kong has had a vibrant commercial banking sector with trade finance and transaction banking accounting for significant market shares of the financial services industry. Trade, as a whole, accounts for almost twenty percent of Hong Kong’s GDP with financial services contributing approximately the same amount. Despite this, it is only relatively recently that banks, and regulators, have opened the door to faster and more reliable methods of payments. Most notably with the launch of eTradeConnect in 2018, an HKMA backed blockchain-based banking trade finance platform backed by twelve Chinese and international banks. Following this initiative, HSBC also launched a stand-alone platform, Serai, which aims to provide a trade matching system for small and medium-sized companies.
Retail banking forecast.
On the retail banking side, the biggest story of the last year has been the awarding of virtual banking licenses to 8 applicants. This is seen to be a game-changer in the Hong Kong retail consumer banking landscape, a market worth in excess of HKD 20 billion in revenues per annum. The industry is dominated by four large banks, HSBC, Bank of China, Standard Chartered and Hang Seng Bank, which is majority-owned by HSBC. None of these have been market leaders in the adoption of mobile banking with DBS leading the way in introducing new technology and, interestingly, Citi catching up not only in this function but also digital wealth management. The Citi Cash Back Visa Card campaign was named the Most Innovative Social Media Project of 2017.
Within traditional retail banking one area that is particularly well developed is the credit card market. According to HKMA statistics, the total number of credit cards in circulation was 20.06 million by the end of Q2/2018, from a total population of 7.4m people. The figure represents a 4.0% increase from the previous year. The total number of credit card transactions was 181.11 million for Q2/2018, representing a 8.4% increase from the previous quarter and a 17.1% increase from the same period in 2017. The total value of credit card transactions was HK$178.9 billion for Q2/2018, representing a 2.0% decrease from the previous quarter and a 15.4% increase from the same period in 2017. Of the total transaction value, HK$137.3 billion (76.8%) was related to retail spending in Hong Kong, HK$29.9 billion (16.7%) in retail spending overseas and HK$11.7 billion (6.5%) in cash advances.
The biggest threat to revenues in both the retail banking and the credit card markets is the emergence of mobile payments with seventy percent of Hong Kong banks seeing ‘loss of market share’ as their number one threat and ‘increased customer churn’ cited by over 50% of respondents to a survey by consulting firm PwC.
The mobile payments market is contested by eight main players as at Q2/2019:
Apple Pay functions as a Hosted Card Emulation (HCE) where you are able to store your payment cards and conduct transactions through the app. Apple Pay works with many of the major credit, debit, and prepaid cards from the top banks and card issuers. It is compatible with existing contactless terminals.
Ant Financial operates Alipay HK. In November 2018, Alipay HK announced that it inked a deal with MTR Corporation to use a QR code mobile payment solution. The new mobile payment system allows users to scan a QR code from their smartphones onto the MTR’s turnstile reader. Alipay HK said the new QR code payment system will be rolled out in 91 MTR stations by mid-2020. As of June 2018, Alipay HK has 1.5 million registered users.
O!e Pay is an app which can be used on devices with NFC to may cashless payments and P2P transfers. As users top-up the value in their Octopus Cards, the balance can be transferred over to the O!e Pay app to buy e-ticketing, QR code payments, and other digital payments.
PayMe is a peer-to-peer (P2P) payment service created by HSBC Hong Kong. Users first need to register with either their Facebook or phone number, and then link up their credit card or bank accounts to PayMe. The app encourages users to “add friends” to their PayMe account to make cash transfers easier and faster. As a P2P app, users can only make payments to other PayMe users and not to vendors. To improve purchasing usability, PayMe partnered with HKTV Mall to allow payments through the app for both online and in-store purchases. After launching for a year, PayMe reached 1 million users in June 2018.
TNG Wallet is a homegrown e-wallet provider launched in Hong Kong in 2015 with 600,000 active users in the city. TNG Wallet uses an online-to-offline (O2O) mobile suite which can be used for merchant and purchase payments, P2P money transfers, cash withdrawals, utility payment and SIM card top-up. TNG’s ‘Global E-Money Alliance’ platform currently covers Hong Kong and over 160 countries, including Mainland China, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam, India, Sri Lanka, Bangladesh, Nepal and Pakistan, European Union countries, which provides 24×7 cash-in and cash-out services to its users through a network of over 5,000 banks and over 400,000 cash pick-up points globally
Telecommunications provider HKT’s Tap&Go e-wallet allows users to pay with MasterCard and UnionPay on their smartphones. They have also partnered with Hong Kong start-up, Heycoins, which allows customers to convert coins into electronic currency on the Tap&Go wallet.
Samsung Pay’s Smart Octopus partnership with MTR is as functional at the physical version of the octopus card. Samsung phone users using the Samsung Note, Samsung S, Samsung A and Samsung C series can use both near-field-communication (NFC) and Magnetic Secure Transmission (MST) to tap for purchases.
WeChatPay. Every WeChat user can link their debit card to the balance of their WeChat Pay account to transfer money and make purchases. Meanwhile, users who link their credit cards can only make payments to vendors. WeChatPay has partnered with the mainland’s largest payment provider China UnionPay and its subsidiary UnionPay International to offer cross-border mobile payment services for Hong Kong residents, allowing them to use the Hong Kong version of WeChat Pay on the mainland.
2018 saw a YoY 30% increase of mobile wallet users from 2.46 million to 3.20 million with more than half of users using their mobile wallet at least once every week. The average monthly spending on mobile wallets is close to HK$600 per user with WeChatPay, Alipay and OlePay being the leading players, leapfrogging Samsung Pay and Apple Pay who were the leaders in 2017. Growth has been slower than in other regional markets due to the deep market penetration of Octopus cards and credit cards in the Hong Kong market.
The bottom Line:
Whilst Hong Kong may lag in mobile payments adoption versus China it is estimated by the United Nations Conference on Trade and Development that the share of credit and debit cards in global payments is will drop to forty-six percent this year (2019) from fifty-one percent three years ago, citing figures from payment processing company Worldpay. As Hong Kong becomes increasingly integrated with China (particularly under the auspices of the Greater Bay Area Strategy) and as the number of mobile telephone users upgrading to smartphones continues to increase, it is only reasonable to assume that the growth of mobile payments, versus cash and card, will increase at pace.
Warwick Pearmund | Executive Search & Fintech Expert.
Warwick Pearmund leads the Technology practice in the Asia-Pacific region for Pure Search, a London headquartered global recruitment firm. He specializes in recruiting top talent across the core disciplines of financial technology, quantitative and systematic finance, payments, digital strategy, insurtech, data science, analytics, AI and machine learning, robotics, blockchain and cybersecurity.
Warwick has lived in Asia since 2006, when he was transferred to Tokyo with Jefferies investment bank, moving to Hong Kong, with his family, in 2011, a city that he now calls home.
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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