Cash is no longer king in Hong Kong, with the Covid-19 pandemic driving two major and interrelated trends – growth in online shopping and digital payments.

The city had been relatively slow to adopt digital payments, especially when compared to Mainland China where consumers can pay for just about everything using their phones. But Hong Kong is now making the switch and digital payments – using apps, QR codes and mobile-linked cards – have soared. This is partly due to the rise in internet shopping, but also because digital facilities are more widely available in bricks-and-mortar stores.

Digital advantages

For businesses, there are many benefits to going digital, as Nicholas Chan, Senior Marketing Manager at Tap & Go, the payment provider from HKT, explained. Firstly, it is much more convenient, as digital payments are usually directly deposited to the company’s bank account at regular intervals.

“Merchants no longer need to queue at a bank branch to deposit their cash, or be afraid of theft of the cash,” he said. 

Digital payments also provide clear and instant transaction records, Chan added. This gives vendors a better insight into sales patterns and customer behaviour, helping them to fine-tune their marketing strategies.

While many larger and mid-sized firms have already started accepting digital payments, it is not so widely available among smaller vendors. But this is also shifting. Daniel Hong, Vice President of Tencent Financial Technology at WeChat Pay, said that the company is actively encouraging small traders, including market stalls, to start offering digital services.

“The use of electronic payments in wet markets is not only convenient and safe, but also helpful in fighting against the pandemic,” Hong said. “For customers, contactless transaction is cleaner and safer.” 

Pandemic impact

Since the beginning of the Covid-19 pandemic, social-distancing measures and remote work means that people are staying at home more, and are more concerned about hygiene. These factors are changing behaviour, and Hong said that WeChat Pay has seen a massive rise in users in the last 18 months.

“During the pandemic, as people avoided going out and stayed at home, they have got used to online shopping, digital entertainment and takeaway services,” he said. “As a result, the transaction volume of WeChat Pay HK saw a significant increase, with the average number of transactions per user recording a year-on-year increase of 46% in 2020.”

Chan from Tap & Go agreed that Covid has had a major impact on payment trends, and he expects these habits will last, as awareness about viruses has made the touch-free aspect a key benefit.

“I can see a more ingrained shift towards digital payments as consumers have more concerns about handling physical notes and coins due to the pandemic,” said Chan. “Digital payments will enable them to conduct payments while maintaining a safe distance.”

Alipay has seen a rise in users since the pandemic, and previous users have become more active, explained Jennifer Tan, CEO of Alipay Hong Kong. Also, as offline transactions have moved online – takeaway rather than dine-in, for example – this has facilitated the move to digital. 

In another trend, e-payments are being used more broadly, Tan said, such as a rise in peer-to-peer transactions. Digital wallets can be used in a wide range of settings, from taking the MTR to cross-border remittance, she added.

For some retailers, there remains a significant difference between in-store and online purchases when it comes to digital payments. Alan Cheung, Head of E-Commerce at Yue Hwa Chinese Products Emporium, said that while the proportion of digital sales in the company’s physical stores had risen between 2018 and 2019, this has stalled since the pandemic. This is likely because of the fall in visitors from Mainland China since the pandemic, he said.

“For the online store, it is a different story,” Cheung added, where digital payments have been growing rapidly.

Andrew Yu, Director at Yue Hwa Chinese Products, said the company anticipates this trend of online sales growth will continue in the near future, including their growing market of overseas customers.  

“We see a lot of traction in online, and we are planning to expand our online business,” Yu said. “Even after the pandemic, we expect there will be more growth in the online business.” 

E-voucher boost

This month, Hong Kong citizens started to receive the first tranche of the Government’s $5,000 Consumption Voucher Scheme (CVS), which will be delivered via four stored value operators: Alipay, Tap & Go, WeChat Pay HK and Octopus. Besides giving an immediate boost to the economy, the scheme is also intended to encourage more businesses and consumers to switch to digital.  

Chan from Tap & Go said the CVS incentive had already played a major role in encouraging the use of digital payments, including among merchants that had previously only accepted cash. 

“We have seen a drastic increase of usage of customers spending using digital payments,” he said. “There has been at least a fourfold increase in merchants applying to accept our various merchant solutions to enable them to accept CVS payment, either in-store or online.” 

Tan from Alipay explained that the first wave of adoption of digital payments in Hong Kong had been among the big chain stores.

“They have the IT resources, and are also knowledgeable about how the technology can help them to accelerate their business and give them a competitive edge,” she said. 

Smaller businesses do not have these resources, and are more likely to have concerns about the upfront costs of installing new payment systems and transaction fees. However, Tan added, the four providers have waived some of their fees or offered discounts to merchants during the CVS period. 

Mobile payment providers often offer various deals to their customers to encourage use. Alipay, for example, offers “e-stamps” that can be accumulated to get discounts. 

“In Hong Kong, we have had a lot of credit cards and stored value cards for many years, so people’s spending behaviour is already well established,” Tan said. “As a new payment method, we need to encourage people to change their habits.”

As the e-vouchers are being rolled out, digital payment providers have ramped up their promotions, and teamed up with businesses across the city to offer additional deals, raffles and discounts. 

Hong from WeChat Pay anticipates these deals will stimulate further consumption and create additional economic benefits beyond the $5,000 per person. 

“Hong Kong is a dynamic and innovative market, where local consumers are keen to try new things and embrace change. The multiplier effect of the consumption voucher scheme will help boost economic recovery,” he said. 

Stumbling blocks

The fact remains that digital payments are still not as widely used in Hong Kong as in some other jurisdictions. While the Government’s e-vouchers are one incentive, the digital payment providers are themselves working to increase acceptance, as Tap & Go’s Chan explained.

“Given that digital payments is still a new mode for many merchants, we are continuing our efforts to further simplify the application process using digital onboarding means, as well as some direct help from us as a payment provider to merchants,” he said.

However, Alipay’s Tan, who is also Chairman of the Chamber’s Digital, Information and Telecommunications Committee, said that Hong Kong should not be seen as a laggard in financial technology. 

“Hong Kong is the pioneer in payments,” she said. “More than 20 years ago we already had the Octopus contactless stored value card. And the average person in Hong Kong has two or three credit cards.”  

But we do need to catch up with mobile payments, especially as our neighbours – in Southeast Asia as well as Mainland China – have higher adoption rates. Tan is optimistic that, especially after the CVS incentive, the city will see increasing use of digital payments. 

“In Hong Kong, our smartphone penetration rate is one of the highest in the world, and people are very good at using their phones,” she said. “So we won’t have a problem catching up.”

Cheung from Yue Hwa Chinese Products said that for a mid-sized company like theirs, there have been a few challenges in the shift to digital.

“Using a company like us as an example, we needed to spend some resources on integrating the different types of payments and to make sure that all of our branches can accept these payments,” he said.  

Overall, Yue Hwa Chinese Products welcomes the shift to digital payments. However, Cheung added, there is still hesitance among local people – some of whom don’t even use internet banking. He suggested that the Government could do more to inform people about the safety and convenience of mobile payments. “Once they start, customers really love using it,” he said.

Yu from Yue Hwa added that digital payments is similar to online shopping, where some people just need help in understanding how to use the technology.

“Last year, when the pandemic situation was pretty bad, we had some customers who asked our staff how to shop online,” Yu said. “Our staff were very patient and taught them how to use the online store. Once customers have successfully purchased something they are very willing – it is just taking the first step.”