Cashless Society

With the escalation of the anti-extradition bill protest, some members of the community are advocating a public octopus card strike to boycott the MTR Corporation. However, except for the taxi, the octopus card seems to be the only electronic payment method available for most forms of transport in Hong Kong.

This raises several questions: 1) There are many electronic payment methods in Hong Kong, including but limited to credit cards, Apple pay, Alipay, etc., but why the octopus card is still the only solution to transportation payment, leaving alone cash? Meanwhile, Hong Kong as an international financial center, why many small shops and vendors only accept cash, leaving not much sign of a “cashless society”? Recently, with the official launch of the Faster Payment System (FPS), Hong Kong seems to have taken a big step forward, but will it be enough to keep up with its foreign neighbors?

At present, many places in Hong Kong that accept credit card payment such as restaurants and large shops, still require card swipe and customers’ signature. In fact, contactless payments are no longer a fantasy as merchants in London and Singapore have adopted tablets, phones, and even card readers for transactions, where tips can be left at the touch of a button. Although electronic payment technology is quite mature in Hong Kong, many merchants have not yet adopted it. Apart from transaction costs, what are the other considerations? At the same time, Alipay in the mainland is popular among merchants of all sizes, including hawkers and even beggars, not to mention prostitution as joked by the Economic professor in Hong Kong before. 

Some scholars believe that the most important reason why Hong Kong has yet been a cashless society is due to the mature development and first-mover advantage by credit cards and Octopus cards in Hong Kong. As early as 2007, the average Hong Kong resident held 2.6 credit cards and the number of octopus CARDS issued exceeded 34 million. The Hong Kong Monetary Authority (HKMA) said in 2014 that there were 19.47 million credit cards in circulation in Hong Kong with the increase of 1.4% year-on-year, and the total transaction volume was 160.5 billion Hong Kong dollars with the increase of 6.5% year-on-year, of which 75% was Hong Kong consumption. In Hong Kong, the penetration rate of credit cards and octopus cards is high. Usually, transactions above $100 are paid by credit cards, while those below are paid via the octopus cards. The high penetration rate of credit cards and Octopus cards is the most prominent reason why other forms of electronic payments may be difficult to flourish in Hong Kong. 

Besides, Hong Kong people attach great importance to privacy and have reservations about a single mobile application dealing with all financial functions. Many sophisticated programs in the market independently handle instant payment, online payment, remittance, P2P, etc. However, in 2010, it was reported that the Octopus card company sold the personal data of about 2 million customers to six companies for promotion in return for $44 million in revenue. Therefore, the Octopus card that has a high penetration rate may not be secure in terms of private privacy. This is a security problem that the Octopus card should work on although it seems that not so many Hong Kong people are aware of the risk involved.

There are a few good reasons for the popularity of Alipay or Wechat Pay in Mainland China.  First of all, the highest denomination of banknotes is only RMB100 which is not convenient for large amounts of transactions. Secondly, due to the credit risk profile in China, the average number of credit cards per capita is substantially lower than that in developed economies and ordinary citizens living in second or third-tier cities do not even have credit cards. Thirdly, the Octopus-like payment cards are only applicable to some public transportation in the city-level but not nationwide. On the other hand, QR code payment is cost-efficient without the need to install devices and thus gains popularity to benefit most citizens in Mainland China. Last but not least, the mobile payment market lacks foreign competition and the two monopolies of WeChat and Alipay dominate. Therefore, the success of Alipay and Wechat Pay is in large part due to China’s special background and circumstances. But here is the tricky question: when merchants reject cash transactions and only accept electronic payments, isn’t it a barrier to the retail transactions?

The cashless society is a global trend, but blindly pursuing is somewhat counterproductive. The original intention of electronic payment is to facilitate citizens’ living and provide more diverse transaction options, rather than to replace cash payments. Moreover, to a certain extent, it takes a much longer period to raise the acceptance level of electronic payment for the elderly. They may have reservations about the online world and have difficulty accessing and processing online procedures. In addition, although the payment method is a personal choice, de-cashing may deprive citizens of the right to use cash. After all, 85 percent of transactions are still conducted by cash in the world. 

The government has a long way to go in promoting the development of electronic payments. Apart from facilitating financial infrastructure and formulating regulations to protect privacy, it also needs to increase public awareness via education. Moreover, the government should take a more proactive approach and promote open markets. Hill, a former member of the White House National Security Council, said it would take a bigger push to convince Americans to abandon the use of money, with possible solutions such as raising the cost of using cash, introducing taxes and implementing financial incentives. In Hong Kong, the Leisure and Cultural Services Department only adopted Apple Pay and Android Pay for booking venues online in the second quarter of 2018.

It is regrettable that the government is not only slow in pace but also shows signs of partiality to the Octopus. At present, the transportation subsidy for the general public is an Octopus value-added subsidy, and the $2 discount for senior citizens is also provided through Octopus. In other words, is the government in disguise to encourage citizens to use Octopus, which indirectly hinders other electronic payment methods?

Electronic payments have huge potential, especially in the business-to-business and person-to-person sectors. Octopus’s biggest drawback is that it cannot perform the peer-to-peer transactions that PayMe does between individual users. However, if electronic payments are not to simply represent faster transactions, then artificial intelligence and 5G technologies need to be integrated to change the lifestyle, traveling and consumption patterns of citizens. Song Zhiqiang, general manager of ezPay in Taiwan, once used the western cowboy as a metaphor, “The key to the success of electronic payment lies in the user experience. Whoever shoots faster, saves more seconds and steps in the consumer transaction process is the winner.”

FinMonster provides a one-stop platform for Corporates to quickly obtain suitable banking support and compare the best prices. We regularly share the latest banking and FinTech trends, as well as quick tips like info pack that helps SMEs financing. Stay tuned with our website and Facebook.