Is Hong Kong Becoming a Cashless City?

Around the globe, Hong Kong ranks 4th in network coverage, providing over 15,000 public hotspots for users to have access to the Internet. Hong Kong’s high smartphone penetration rate of 90% indicates that wifi-coverage is broad enough to support the development of mobile payment. Yet, the adoption rate for mobile payment remains low, only around 20%, in the territory. The following post will first give a brief overview of the mobile payment situation in Hong Kong, followed by the benefits of mobile payment to both merchants and consumers. It will then dive into the limitations and concerns possessed by citizens that cap the current adoption rate and conclude with the possible contribution of mobile payment to industries in the future.

Current mobile payment situation in Hong Kong

Hong Kong is ready for mobile payment development. In addition, the government is allocating more resources to develop 5G technology, which is seen to be a great advancement in Internet connectivity. By issuing more virtual banking licenses (the current number is 8), more banking functions are made available online, further fostering P2P payment among the Hong Kong population.

Benefits of mobile payment to merchants

Mobile payment reduces merchants’ expenses on transaction and operational costs, and opens up new business opportunities for them.

Low transaction fee: Different from conventional payment through banks, mobile payment offers a much lower charge on the merchants. Traditionally, credit card companies are imposing a 3% commission charge to be paid by merchants to banks on processing the payment while for most mobile payment apps, on average, they only collect 1.3% of the transaction fees from merchants.

Wider consumer base and revenue stream: Traditional payment also includes paying with cash, but often, that only allows in-store payment and shops which only accept cash has confined their consumer base to local consumers. According to a report done by EJ Insight, one-third of the business generate considerable revenue from online sales and given mobile payment charges a much lower transaction fee, it helps small businesses broaden their consumer base and diversify their revenue streams.

Benefits of mobile payment to consumers

The current pain points of conventional payment methods include inconvenience in cash payment, difficulty to manage bills or credit payments and the lack of good promotional offers. All these translate into problems like long queues at cashiers at retail stores, overdue problems of credit card bills and a failure to receive promotions from retailers. Mobile payment brings about several advantages: payment time can be shortened, managing daily expenses is easier as all transactions will be recorded electronically, consumers can receive notifications about offers and rewards from selected retail stores.

Given the fact that Hong Kong is ready to take off in the mobile payment field and the benefits of mobile payment to both merchants and consumers, why is the current penetration rate only around 40% of the population? Below lists some of the concerns by merchants and consumers which need to be tackled before the city can fully adopt mobile payment.

Limitation of Mobile payment to merchants

Extra cost incurred: Mobile payment incurs extra administrative cost as it requires the installation of QR Code Scanners. On average, the scanners cost $150 annually to rent in addition to the low 1.3% commission charge. Stores have to set up the application interfaces, which cost around $25,000 for the initial outlay and $1,250 monthly maintenance fee. For staff training cost, it is estimated to be around $1,250 as the initial cash outflow.

Benefit not very significant: One very special feature in Hong Kong is that the city already has an efficient NFC Payment solution, Octopus card. Over 95% of citizens use Octopus card and the average transaction time is shorter. Octopus card functions in a way similar to a debit card and can be used mainly in transportation, convenience stores and traditional restaurants. Currently, most restaurants and retail stores do not accept Octopus card.

With that said, few consumers use mobile payment and mobile payment does not reduce the transaction time when compared with Octopus Card, the existing benefits of mobile payment to merchants fails to create enough incentives for merchants to adopt mobile payment.

Concerns of consumers

Security: With reference to a survey done by Paypal, 33% of the interviewed expressed a concern over the security of the transaction. They are uncertain about the anti-hacking software installed in-app and worry it may lead to a high risk of internet fraud during transaction.

Privacy: In the same survey mentioned above, over half of the interviewee prioritize the problem of privacy. Users are worried about their personal information being sold to third parties, as reviewed in numerous scandals of the big companies in recent years. Data leakage is a major deterrent for most users to adopt mobile payment.

Difficult operation: Users may find it confusing to use mobile payment, particularly the older generation, who is more resistant to new payment methods. The Chairman at Smart City Consortium Fintech Committee has expressed his worry that ‘the confusion in usage annoys users, so consumers just turn away from mobile payment’. It requires the users to navigate the payment app as there is currently insufficient introductory video available to new users.

The aforementioned explains the perceptions from both the merchants’ and consumers’ sides and without tackling each of them, it is hard for the city to reach a high mobile payment penetration rate. However, if these obstacles are removed, it is expected that mobile payment will serve as a platform to spread unmanned systems and help brick-and-mortar stores shave growing labor costs. More automated stores will gradually replace conventional shops as these staffless stores are considered one of the more promising cost-saving technologies. Yet, taken the current context of Hong Kong into consideration, it is believed that there are still some years to go before the cash can go completely cashless.

By: Jovy Mok (GRC Harvard)