Battle of the digital wallet giants
Mainland’s instant payment platforms fight for Hong Kong market amid rising competition
Hong Kong’s shopping districts are well-known for their fierce competition. Now, a new battleground is forming, as digital payment firms fight for retailers and shoppers.
Chinese tech giants like Tencent and Alibaba are bringing their payment platforms to a city that has long thrived off cash and credit cards, putting them in competition with the likes of Google, Apple and Samsung, as well as local players like HSBC.
“Hong Kong is probably a little behind other places when it comes to digital payments, so we are seeing a rush to establish a first mover advantage,” said Fergus Gordon, who leads Accenture’s Asia-Pacific banking practice.
The city has become an important testing ground for Tencent’s WeChat Pay and Alibaba’s Alipay, dominant rivals on the Chinese mainland, as they look to establish themselves overseas.
AlipayHK, a joint venture between Ant Financial, Alibaba’s payment arm, and Hong Kong conglomerate CK Hutchison, says the number of its users has jumped 50 percent to 1.5 5 million since March.
WeChat Pay does not disclose its user numbers in Hong Kong.
Meanwhile, Visa says that as of April 2017, every one in 10 Visa payments in Hong Kong had been made using ApplePay, SamsungPay or GooglePay, double that from a year earlier. HSBC said in July that it had reached one million users for its peer
to- peer payments app PayMe.
Hong Kong has been slow to embrace mobile payments partly because of the ubiquity of Octopus, a once groundbreaking storedvalue card that is accepted by 22,000 businesses across the city, including convenience stores and small restaurants, and is widely used on public transport.
Despite the growth of mobile payment platforms, current spending habits will be hard to change.
A Hong Kong Productivity Council survey published in July found that the most widelyused mobile payment methods were Alipay and WeChat Pay, but they were used by just 22 percent and 19 percent of respondents, respectively. However, 97 percent of respondents said they used Octopus cards.
Lack of familiarity and worries about data leakage were the most common reasons given for not adopting the new mobile payment systems.
Octopus cards were first launched in 1997. Twenty years later, there were 34.4 million cards in circulation – equating to almost 5 cards per Hong Kong resident, according to the company. p y
But even Octopus is feeling the he heat from growing competition. Its net profit fe fell by one-third in 2017 to HK$272 million ($34.66 million).
However, Sunny Cheung, Octopus Octopus’ chief executive, said that the numbers were a one-off, since the company had been spending heavily, particularly on technology and cybersecurity. He added that the com company still had an edge over t the newcomers, particularly with small businesses l long used to Octopus payments. “Acceptan “Acceptance is key, especially in th the ‘mom and pop’ shops.”
An AlipayHK spok spokeswoman said that the compan company was trying to attract users by offering special discounts.
“At the same time, we ar are seeking cooperation with various merchants to increase the penetra penetration of AlipayHK to change consumer consumers’ habits little by little,” she said.
Fierce battleground
Merchant cooperation is hard to get right though, due to the differing tastes of consumers.
Edward Ho, who owns a shop selling luxury bags in Hong Kong’s teeming Causeway Bay shopping district, began allowing payments via Alipay last year but gave up on it after customers showed little interest.
“Unless these systems are as popular as Octopus, I won’t consider them,” Ho said.
However, James Lam, who runs the watch shop next door, installed Alipay after one visitor from the Chinese mainland would only buy timepieces using Alipay or WeChat Pay. Lam now encourages local customers to use the digital wallets too.
As well as consumer demand, other new initiatives are attracting market interest.
Throughout August, MTR Corp has been inviting tenders to create a new QR codebased payments system for traveling on the city’s subway system. In September, the central bank plans to roll out a faster payment system that will allow for real-time processing.
Visa has said it will bid for the MTR tender, while market insiders expect Alipay and WeChat Pay to also participate.
Cheung declined to comment on Octopus’ plans for the tender. Tencent did not respond to a request for comment, but AlipayHK said that e-payment on public transport is something that the company “is actively working on.”
While the mobile payment companies will be looking to supplant Octopus’ dominant position in the public transport system, ultimately their aim, analysts say, will be to create a wider network of services, which could range from food delivery and ride hailing, to financial services and lending.
“It is difficult to make money from payments, but they can be the glue that ties together an ecosystem of services,” said James Lloyd, Asia Pacific fintech lead at EY. “The company that succeeds in Hong Kong will be the one that learns this lesson.”