A natural crossroad between East and West and a gateway to Mainland China, Hong Kong is one of the world’s leading international financial centres, ranking third after London and New York. The densely populated city of over 7.5 million people is also one of the world’s top ten technology and innovation hubs outside of Silicon Valley.
Hong Kong is an increasingly digital-savvy society, with a mobile penetration rate of 320% in November 2021 and an internet penetration rate of 93% in January 2022. According to The Asset, Hong Kong has one of the most advanced digital economies, ranking second to Singapore in Asia Pacific and third globally.
Despite this, Hong Kongers are somewhat wary of digital payment solutions. According to Unicard HK, Hong Kong consumers have considerable concerns over data privacy and security. As recently as 2019, 88% of Hong Kong shoppers still used cash when they shopped offline.
However, the Covid-19 pandemic and severe lockdown measures have drastically changed Hong Kong’s payments landscape. Consumer behaviour has altered entirely as a result. To stay competitive, financial institutions must quickly adapt to the fast-evolving payment needs of the local population.
In this article, we will examine Hong Kong’s most popular payment methods, summarised as follows:
While Visa’s report on consumer payment attitudes recorded a net decrease of 37% for cash usage between 2019 to 2020, cash persisted as one of Hong Kong’s top payment choices during the pandemic, constituting 23% of all methods used by August 2020.
The Chartered Banker declared that cash is still king in Hong Kong. The publication attributed Hong Kong’s love affair with cash to public distrust in smart payments on both the merchant and consumer fronts.
According to Philip Kam, General Manager at the Hong Kong Institute of Bankers,
“The reason why people like cash here is that they simply like the tangible feel of money."
This practice is especially apparent during auspicious festivities like Lunar New Year, when Hong Kongers maintain the tradition of giving and receiving crisp, new notes in red packets.
To steer Hong Kong beyond cash, the Hong Kong Monetary Authority (HKMA) has been proactive in encouraging the use of cashless payment methods. This exercise began with the widespread distribution of POS terminals throughout Hong Kong between 2015 and 2019, which saw the total number growing by a CAGR of 4.1%.
Later in 2018, the HKMA rolled out the Faster Payment System (FPS). This payment financial infrastructure enables 24/7 instant payments across all payment channels, including cards and digital payments. Before the FPS’ launch, bank transfers between different banks were time-consuming and expensive.
More recently, in 2021, the Hong Kong government rolled out a HK$36 billion e-voucher scheme to stimulate consumer spending during Covid-19. The first batch of HK$5,000 e-vouchers was funneled through four major digital payment operators: Octopus, AlipayHK, WeChat Pay HK, and Tap&Go.
With each of these platforms coming with its own separate perks, Hong Kongers were effectively encouraged to use digital payments. From just the first phase of this e-voucher scheme alone, digital payment usage in Hong Kong soared, with at least 2.2 million new accounts created on Octopus, AlipayHK, WeChat Pay HK, and Tap&Go.
The e-voucher scheme is set to continue with the second phase in 2022, distributing HK$10,000 in e-vouchers to 6.6 million eligible Hong Kongers in two stages. With the government leveraging various channels to encourage the use of digital payments in Hong Kong, it’s clear that cashless is the way forward.
Close economic and trade ties with the neighbouring China market are likely to hasten Hong Kong’s transition to digital payments. Recently, Chinese private banks Zhongguancun and NewUp completely terminated cash services, further propelling China towards being fully cashless. China has also announced plans to expand its digital currency e-CNY nationwide and proposed the launch of a pilot scheme in Hong Kong.
Credit cards have consistently remained a top choice in Hong Kong’s payments landscape, with Statista noting that they accounted for 55% of all point of sale (POS) transactions in 2021. By the end of 2021, the total number of credit cards in circulation stood at over 19 million - this is a staggering figure when weighed against the city’s 7.6 million-strong population.
Hong Kong is a mature payment card market, recording a high card penetration rate of 3.4 cards per inhabitant. Much of this growth is attributed to its solid and reliable payment infrastructure, leading to consumers preferring credit cards over other online payment methods.
To further encourage the use of credit cards, banks have stepped up with instalment plans, discounts, reward programmes, and cashback offers.
Credit cards continued to maintain their dominance right through Covid-19. According to a Visa report on consumer payment attitudes, Hong Kong recorded a net increase of 36% in credit card usage during Covid-19, driven by the rise of online shopping forced by lockdowns.
The Octopus card is a stored-value card that is unique to Hong Kong. Like the EZ-Link Cards used in Singapore, it was originally designed as a quick and easy payment method for public transport. The card has since been expanded into a multi-purpose tool for small retail purchases and personal identification, accepted by more than 18,000 service providers across at least 25,000 retail outlets.
The Octopus card has consistently been one of Hong Kong’s preferred payment methods, constituting 16% of all payments used during Covid-19 in 2020.
According to official figures from Octopus, 98% of Hong Kongers aged between 15 and 64 own Octopus cards, with over 33 million cards and products in active circulation. The card is also accepted at over 140,000 acceptance points, making it a staple tool for the average Hong Konger.
Over the years, the Octopus card has expanded its product range to include the following:
The Octopus card is complemented by a contactless mobile app that gives users the freedom to use their mobile devices to top up their cards and make payments. It even has its own proprietary digital wallet called Octopus Wallet, paired with an optional Mastercard.
Given the multifaceted convenience that the Octopus card affords, it is no surprise that Hong Kongers would integrate its use into their daily lives.
Even before Covid-19 reached Hong Kong’s shores, the government had already put in place measures to boost digital wallet adoption. This process began with the Faster Payment System (FPS) in 2018.
That’s why the number of digital wallet users in Hong Kong spiked from 65% in 2017 to 89% in 2018. This number remained consistently high through Covid-19, peaking at 91% in 2020.
Hong Kongers are drawn to digital wallets due to two key reasons: their convenience and the incentives pegged to them. Given Hong Kong’s high mobile phone penetration, it’s only natural for Hong Kongers to set up payments on their phones.
The Hong Kong government further encouraged the use of digital wallets with an e-voucher scheme to stimulate consumer spending. The number of digital payment users in Hong Kong grew by at least 2.2 million, spread out across Octopus, AlipayHK, WeChat Pay HK, and Tap&Go.
Below are Hong Kong’s top digital wallets based on user adoption as of May 2020:
Digital wallets are expected to become the top preferred payment method in Hong Kong by 2023, surpassing even cards and cash.
Primarily powered by Electronic Payments International (EPS), debit cards are a widely-used payment method in Hong Kong. However, according to the Hong Kong Monetary Authority (HKMA) and Statista, while debit cards accounted for a sizable transaction value of HK$77.6 million in Q4 2021, this figure indicates an overall decline - in Q1 2019, the debit card transaction value was HK$90.2 million.
Although debit cards have experienced an overall decline in usage over time, they remain an important payment method for their convenience to Hong Kong consumers. With their built-in contactless PayWave functionality, debit cards speak to Hong Kong consumers’ need for convenient and efficient payments.
Advanced in finance and technology, Hong Kong will only continue to strengthen its digital payment capabilities - especially with the government’s proactive involvement with initiatives to encourage digital payment adoption and improve financial infrastructure.
Despite this, cash will continue to be a major payment method in Hong Kong, especially in light of local cultural practices.
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