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HSBC readies wave of digital tools for retailers’ payments

Why is HSBC’s corporate bank – not the consumer bank – launching digital payment services for merchants in Hong Kong?

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This week, DigFin is all about smart banking in Hong Kong, and the new business models it is enabling. Today we break the news of how HSBC will use faster payments to enhance its corporate business. Earlier this week we looked at API infrastructure and one fintech's ambition to leverage them, plus our view on virtual banking. You can also check out our introductory video here.

HSBC is about to roll out a series of mobile payments, building on the imminent debut of PayMe for Business. This is will be a series of services primarily aimed at retailers in Hong Kong. The bank is preparing to go to considerable lengths to encourage merchants to use its technology to settle payments instead of cash.

This initiative is being led by the corporate bank. It’s a strange project – micropayments – for a business that traditionally exists to service treasurers and CFOs at big corporations.

It’s also unusual for a corporate bank to attempt to reach retailers through a tool designed for consumers. PayMe is the bank’s successful consumer-to-consumer payments app, which now has over 1 million users in the city.

Yvonne Yiu, managing director and head of global liquidity and cash management for Hong Kong, says PayMe for Business is designed to support merchants’ cash collection.

It involves a series of features, starting with a mobile payments app, so PayMe can be used to buy a cup of coffee at a local restaurant, for example. Merchants first must add PayMe for Business to their smartphones to accept payments from PayMe users via QR codes, without requiring a point-of-sale (PoS) device. Retailers can direct collections either to the PayMe wallet or transfer to their bank accounts.

Today, consumers can already transact across Hong Kong’s recently launched Faster Payments System (FPS) – the infrastructure supporting smart-banking initiatives in the city. There are 21 banks now using APIs to connect to FPS in Hong Kong.

According to the Hong Kong Monetary Authority, FPS in its first month of operations (October 2018) processed nearly 1.6 million transactions, of which 1.56 million were denominated in Hong Kong dollars for a total value of HK$33.3 billion (US$4.3 billion).

Omni everything

HSBC is making these rails available to merchants as well, giving them access to real-time settlement 24/7, regardless of which bank their customers are using. The same will go for paying their bills.

These digital collection methods will also let merchants accept payments online, by letting shoppers scan a QR code on their computer screen. Unlike with a credit card, QR codes retain the confidentiality of a consumer’s personal details.

The bank is also preparing what it calls an “omni-platform”, which supports the acceptance of multiple payment options, including FPS and PayMe, through one single device. This will provide merchants with a centralized view of all of their transaction data and cash flows, as well as make integration and installation simpler.

Faster Payments and PayMe for Business open new opportunities for us

- Yvonne Yiu, HSBC

In other words, a consumer with (say) a Bank of Communications account could buy something from a merchant banked with Standard Chartered, but the data would flow through HSBC’s settlement platform.

Once the merchant sets up the digital collection tool, “All transaction data become centrally available on your own bank’s platform,” Yiu said. “We designed this to give merchants flexibility. We would not offer them only a closed-loop system, only for consumers with HSBC accounts.”

Instead the bank is building its omni-platform in conjunction with FPS, to enable merchants to accept payments from all participating banks and multiple schemes.

Changing consumers' habits

HSBC already has similar services in China and Thailand. In those markets, its PoS devices also accept payments from AliPay and WeChat Pay. Yiu couldn’t say whether that will also be the case in Hong Kong; the bank is assessing merchant demand.

Of course, HSBC can lead a horse to water but it can’t make it drink: once merchants are given these tools, it will be up to them to get their consumers to choose digital payments rather than cash or credit cards.

There are some natural benefits to using digital payments. Merchants must pay around 3% on items sold via plastic, whereas there’s no fee for digital settlements. Cashless payments make it easier to cross-sell. And consumers will like the anonymity of, say, paying through a mobile wallet or using a QR code, versus having to give merchants their credit-card details and identity. (Reduced card fraud is another plus for banks.)

Credit cards have their own advantages, however: they make it easy for merchants to process chargebacks, and consumers like getting loyalty points and air miles. The likely outcome, therefore, is that credit cards will remain the payment method of choice for big purchases, but digital methods will become more popular for small, daily things.

The corporate bank's ambition

That’s all great – but what’s it got to do with a corporate bank?

“Our cash management offering in the retail merchant space has been limited in the past,” Yiu said. “But Faster Payments System and PayMe for Business open up new opportunities for us.”

Retail payments in Hong Kong have traditionally transacted in cash or with credit cards, or with EPS, a payment service operated by Octopus (the mass-transit network payments operator). AliPay and WeChat Pay have created a market for mobile payments, but these only work if the merchant can match the operating system on the consumer’s phone.

HSBC is about to give merchants a single device, and a single mobile wallet, to handle them all.

The reason is to help the bank use the data it hopes will flow through PayMe to better understand retailers’ cash-management needs. So far about 100 of its customers have signed up to use FPS, and the bank is talking to up to 1,400 more to encourage them to do the same. Many of these merchants are SMEs, of which some are ultimately part of larger corporations and family-run conglomerates.

“We can do more to support the treasurer and the financial controller,” Yiu said, by getting a unique perspective on how just-in-time cash collection can impact their retail arms. By helping merchants collect cash more efficiently, “We can help them get better data about their business.”

HSBC’s corporate bank hopes this gives it a competitive edge when it comes to holistic solutions for corporations’ working capital needs.

It’s an example of how incumbents are taking advantage of smart banking – even parts of banks that previously had nothing to do with retail. Thanks to faster payments and open APIs, a corporate bank can harness digital technology to turn retail cash collection into unique business intelligence.

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HSBC readies wave of digital tools for retailers’ payments