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February 6, 2019

Hong Kong: Alternative payments gather speed

By Patrick Brusnahan

Hong Kong is a widely recognised global financial hub, with few regulatory barriers for foreign banks and card payment participants.

This status acts as an encouragement to banks from Mainland China and other overseas markets to expand their presence in Hong Kong. The special administrative region of China represents a mature payment card market in Asia, with 26 million payment cards in circulation for a population of just over seven million.

Payment cards are the second-most-popular payment instrument in Hong Kong, accounting for 24.3% of the overall payment transaction volume in 2018. Growth in Hong Kong’s payment card market is driven by pay-later cards, which accounted for 67.1% of the total card payment value in 2018.

The payment card market is expected to grow further against a backdrop of banks expanding their services in rural areas by launching mobile banking branches and new physical branches.

The Hong Kong Monetary Authority is clearing the path for the establishment of virtual banks, and an instant payment system will only aid this growth.

PAY-LATER PREFERENCE

Pay-later cards accounted for 67.1% of total card payment value in 2018.

Pay-later card penetration is high in Hong Kong, with each individual holding almost three credit cards. In this mature market, banks are focusing on boosting card usage by offering various instalment plans, discounts, reward programmes and cashback.

The number of pay-later card payments has registered strong growth both in terms of volume and value, recording respective CAGRs of 8.6% and 5.9%.

E-COMMERCE GROWTH

Hong Kong’s e-commerce market grew significantly between 2014 and 2018, recording a CAGR of 15.1%. This growth has prompted many companies to launch online and alternative payment solutions.

PayPal launched its fast checkout service, One Touch, in November 2017. Mastercard and Visa launched their respective online payment solutions, Masterpass and Visa Checkout, in Hong Kong in 2015. Alipay, WeChat Pay, Google Pay, Apple Pay and Samsung Pay have all subsequently entered the increasingly crowded market.

OCTOPUS PREPAID

Hong Kong’s consumers are particularly keen users of prepaid means of payment, with each individual holding an average of five prepaid cards. This high uptake is mainly a result of the popularity of the Octopus Card, which is held by the vast majority of Hong Kong citizens.

Initially launched for public transport, the Octopus Card is now widely accepted at convenience stores, restaurants and supermarkets in Hong Kong. In December 2017, Octopus partnered with Samsung Pay, allowing Octopus card holders to make contactless mobile payments via the Samsung Pay platform.

ALTERNATIVE SOLUTIONS

Alternative payments are gaining traction in Hong Kong, with leading international brands such as Apple Pay, Samsung Pay, Google Pay and Alipay all present in the market.

Samsung Pay was introduced in Hong Kong in May 2017, allowing users to make purchases at participating stores with Samsung devices using all forms of terminal and card, including magnetic stripe, EMV and NFC.

In February 2017, HSBC launched its P2P payment solution, PayMe. This service enables users to make free fund transfers to other PayMe users or individuals holding a bank account.

In February 2018, Jetco Pay introduced a merchant payment service, allowing users to make in-store, in-app, and online payments using their mobile phone.

PAYMENT INFRASTRUCTURE

The number of POS terminals recorded a CAGR of 3.9% between 2014 and 2018. As a result, the potential for card-based payments in Hong Kong is also expected to grow.

Some payment service providers are launching mPOS readers specifically to serve SMEs. Advanced Card Systems launched its wireless mPOS reader, AMR220-C1, in July 2018. The solution was developed in compliance with EMV, Mastercard PayPass and Visa payWave, and works with both mobile devices and desktop and laptop computers.

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