17 November 2019
Though Hong Kong’s fintech adoption rate stands at only 32 percent, according to an Ernst & Young study, it's not entirely correct to say that Hong Kong has become a "backward" society. Photo:  Ernst & Young
Though Hong Kong’s fintech adoption rate stands at only 32 percent, according to an Ernst & Young study, it's not entirely correct to say that Hong Kong has become a "backward" society. Photo: Ernst & Young

Government should aim for a cashless society

Recently there has been a prevailing view in society that Hong Kong is lagging way behind other major international cities when it comes to promoting the use of electronic payment systems (or e-payment systems).

That notion is largely based on the argument that while Hong Kong was the pioneer in promoting e-payment back in 1997 by introducing the Octopus Card, the development of financial technology (fintech) in our city has ground to a halt.

As a result, Hong Kong has fallen behind our competitors in promoting e-payment systems, and hence our current “technological backwardness”.

Back in October 2015, the overseas edition of the People’s Daily published an article on the development of e-payment systems in Hong Kong, saying the emergence and rapid popularization of a new generation of e-payment platforms across the mainland such as Alipay and WeChat Wallet had rendered the Octopus Card completely obsolete.

The article then went on to conclude that the outdated Octopus Card was indeed a reflection of our city’s sluggish technological advancement.

The view has been reinforced by a recent global study carried out by Ernst & Young (EY) on FinTech Adoption Rates (FARs) around the world.

According to EY’s FinTech Adoption Index 2017 (FAI), Hong Kong’s FAR stands at only 32 percent, which means slightly less than one-third of our digitally active consumers are using fintech services in their daily lives, compared with 69 percent in mainland China.

Some commentators have cited the findings to “substantiate” their argument that Hong Kong has already degenerated into a “backward” society compared to the mainland.

However, in my opinion, these commentators were jumping to conclusions based entirely on the FAI rankings, and that suggests they might not have read through the whole EY report properly.

If they had done so, they would have noticed that the EY report has actually gone to great lengths to explain why developing countries such as China, India, Brazil, Mexico and South Africa have higher FARs (46 percent) than the rest of the world (33 percent).

While Hong Kong ranked 11th in the FAI, the United States, the world’s largest and most advanced economy, only ranked one place higher than us.

As the EY report explains, there is a reason why the percentage of the population who are using fintech on a regular basis in emerging markets is substantially higher than that in developed economies.

While people in developing countries are becoming increasingly tech literate, most of them remain financially underserved, i.e., they often don’t have as much access to traditional brick-and-mortar banking and ATMs as their counterparts in the developed world do.

As a result, there is strong public demand for the more convenient and accessible app-based e-payment systems or electronic wallets, and hence their higher FARs compared to developed countries.

In other words, as we can see, a country’s FAI ranking isn’t necessarily associated with its socio-economic level, nor do the FARs constitute a legitimate criterion for judging a country’s degree of development.

To determine whether a country or city is “advanced” or “backward”, we must take into account all other social and economic elements in context rather than just looking at its FAI ranking.

As far as consumers are concerned, “convenience” is often not the only determining factor when it comes to choosing payment methods. For example, many people in Hong Kong still prefer to pay by credit card in order to claim the cash rewards or discounts they offer.

In fact, local consumers are often more concerned about stability, reliability and security than convenience or speed when deciding which e-payment platform to use.

And given the fact that the Octopus Card, which has already been in use for 20 years, has proven a highly reliable and safe e-payment device, there is indeed little incentive for our citizens to switch to other new e-payment systems with unknown risks at least in the short run.

But still, since the future lies in e-payment systems, whether we like it or not, I believe our government should set its sights on facilitating a “cashless society” in Hong Kong as a long-term goal.

In order to achieve that, the administration must improve and reform our existing financial services regulatory regime, and amend the Personal Data (Privacy) Ordinance to regulate the use and transfer of personal information through e-payment platforms. Hopefully, both moves will enhance public confidence in e-payment systems.

This article appeared in the Hong Kong Economic Journal on Sept. 26

Translation by Alan Lee

[Chinese version 中文版]

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Member of Legislative Council (Functional Constituency – Accountancy)