The 30-odd applications for virtual banking licenses have garnered plenty of attention, but the real battle in Hong Kong digital banking has already begun: in payments.
On September 30, the Hong Kong Monetary Authority will launch its Faster Payment System (FPS), with 21 banks and 10 stored-value facilities (such as mobile wallets) already signed up. FPS requires all of them to accept payments from any of the others – it even makes different QR codes work together, and accepts renminbi payments – at far lower transaction fees, and in real time.
Leading banks such as HSBC and Bank of China (Hong Kong) are now going head to head against Alipay, WeChat Pay and other non-bank players. Banks’ strategies involve both corporate and consumer businesses, and the outcome will reshape financial services in Hong Kong.
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The first reason why FPS will define winners and losers in banking is that companies and individuals must choose only one bank to serve as their default FPS receiving account. Most people are likely to go with the bank that handles their salaries. Businesses have a more complicated decision to make because they use multiple banks and payment companies. These companies’ first consideration will be price, says Ryan Lam, head of research at Shanghai Commercial Bank.
In other words: a price war has just begun.
“It’s really important for banks to move fast,” said the treasurer at a local utility company. “Once you’ve chosen your default bank, it’s unlikely you’ll change it.” His company has selected a provider (he declined to name it) and will now encourage its customers to pay utility bills via FPS – as opposed to via credit cards, which typically charge 2% fees.
It's really important for banks to move fast
A second consideration will be whether the bank can support the business. HSBC has an innate advantage, as it banks more companies, big and small, than anybody in town.
Moreover it has launched its own mobile wallet, PayMe, which now has over 1.1 million users. The bank hopes to blunt any initiative by Alipay and WeChat to make headway among local merchants.
“Which wallet creates the most benefit?” an HSBC banker said. “What incentives do we give merchants to promote us?” And the banker doesn’t mean just carrots, but also sticks: “What’s our retail bank’s profile with that merchant?” Banks have leverage over companies dependent on their other services, from loans to MPF accounts.
Billy Chan, co-founder of everyware, a cloud-based point-of-sale provider for restaurants, says the company’s system is now configured for HSBC’s FPS. If a restaurant signs up, customers just pay with a QR code – mimicking the habits that have taken mainland China by storm. “For us, updating the service to embrace FPS is as simple as one click,” Chan said. (Unless a restaurant opts for a rival bank’s FPS.)
Chan says FPS is more than just price: it also will let payments to merchants be automatically settled and delivered to their bank account, making it useful for companies juggling their daily liquidity needs.
Nor is FPS limited to small-bore payments: the system allows for transactions up to HK$1 million, making it relevant to large corporations making routine payments. HSBC will charge only HK$15 per payment to corporations using FPS, versus HK$50 for (traditional) internet banking.
Across the industry, FPS will slash fees in half, according to Bank of China H.K.
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The consumer will play a leading role, both for how they choose whether to use FPS services as well as how they influence merchant adoption.
If consumers aren’t using e-wallets already, a company may not see the need to sign up to FPS. Kenneth Ng, director and corporate treasurer at retailer DFS, said he has so far rebuffed banks’ pitches. “We don’t accept payments made by Alipay H.K. wallets or WeChat Pay H.K. wallets, because they’re not used widely in our shops,” he said. (DFS does accept payments from the mainland China versions of those wallets.)
Which wallet creates the most benefit?
Ng expects credit cards to remain the dominant means of payments. The treasurer from the utilities company agreed that most people will continue to pay bills with credit cards, which provide rewards and flexibility.
But such habits can change.
The HSBC banker noted that FPS provides end-to-end settlement, making it potentially easier and cheaper for people to use these rather than a credit card. And banks want to get the user data which, right now, is owned by credit-card networks, so they will be able to offer incentives to get people using payment apps and other forms of debit.
Even the credit-card companies agree with this: Visa released a survey recently suggesting that more than 80% of Hongkongers would switch to mobile or other electronic payments if there’s a cash reward.
HSBC hasn’t yet made available any such offers direct to consumers: it is relying on PayMe to generate activity. Banks lacking such a tool are scrambling to compete. BoCHK is offering a HK$50 cash reward to anyone making it their FPS bank; DBS is offering HK$100, with bonuses for multiple transfers.
It may not be surprising that DBS and Bank of China are the first banks to start wooing consumers: both are participants in PayNow, Singapore’s faster-pay equivalent, which launched last month.