25 April 2019
Hong Kong has taken a significant step as part of a drive to transition to a new era of smart banking. Photo: Bloomberg
Hong Kong has taken a significant step as part of a drive to transition to a new era of smart banking. Photo: Bloomberg

Why HKMA’s new faster payment system is a big deal

Facing criticism that it is lagging China and some other jurisdictions in Asia in adoption of mobile payments and financial technology development, Hong Kong has been seeking to enhance its financial services market.

In keeping with the efforts, the Hong Kong Monetary Authority — the city’s de facto central bank — on Monday launched the so-called faster payment system (FPS), an arrangement that will help speed up transactions and ensure more efficient retail payment services. 

With participation from several banks and electronic payment operators, the FPS will enable people to make cross-bank and stored value facility (SVF) payments easily.

The system will allow citizens to use mobile phone numbers or email addresses to make payments, with the funds transferred immediately to the recipient.

Operating on a 24×7 basis, the FPS will support payments in Hong Kong dollar and China’s renminbi currency, according to a press release from the HKMA. 

Fund transfer “will become very user-friendly with the use of mobile number or email address as account proxy for the payee,” the statement noted.

In addition, the HKMA announced a common QR code standard for retail payments, in a bid to promote the adoption of QR code (Quick Response code) payments in the city.

Together with an associated mobile application tool, the common QR code scheme will allow merchants to use a single QR code to accept different payment schemes, instead of having to display multiple QR codes to their customers.

The FPS and the QR code-related initiatives mark a significant milestone in Hong Kong’s bid to boost its payments market and move forward in the fintech arena.

The FPS connects banks and SVF operators on a single platform, and will enable the public to transfer funds anytime, anywhere, across different banks or SVFs, with funds available almost immediately. 

Simply speaking, once a user registers a phone number or email address in FPS and links them with a receiving bank account for payment collection, he can accept money transfer from his friends with an account from a different bank through his phone number or email address. Bank account number is no longer required.

The launch of FSP in Hong Kong is bound to escalate the competition in the market between traditional banks and the new mobile wallet operators.

One key reason for sluggish development of mobile wallets in the city has been difficulty faced by users in topping up the wallets immediately. Most of the wallets can support direct debit arrangement from users’ specific bank account, but it takes one or two days to transfer the required funding from a bank to a mobile wallet.

With the FPS, the issue will be resolved significantly. Mobile wallet operators can urge users to bind the accounts on the platform as default receiving account so that people will automatically send the money to the mobile wallets.

Such arrangement could help encourage people to use the digital wallets more frequently.

In the long run, as more cash stays in mobile wallets, operators of those platforms will have an incentive to launch financial products that can help users deploy the cash for good returns.

Alibaba Group’s Ant Financial, which operates Alipay in China, has been among the pioneers in the mobile payment industry in the region.

Alipay was the first to introduce a financial product called Yu’e Bao on its e-wallet. The product drew tons of cash from Alipay wallet as people sought to invest in financial products that could fetch better returns compared to bank deposits.

Traditional banks need customers’ deposits to fund their loan business. The new FPS could make it easier for account holders to switch their funds between different banks and wallets for bargain deals. For the banks, this could mean higher costs in luring and retaining customers’ cash. 

FPS will prompt more local merchants and companies to adopt digital payments, given the real-time fund transfer arrangement. Currently, while Hong Kong has many mobile wallet operators which offer payment services to consumers, merchants accepting such payments, however, may have to wait several days or even weeks to get the money to their accounts from the operators.

It is this issue that has hindered digital payments from taking off in a big way in the city. Hong Kong taxi drivers, for example, seek cash payment as they can get the money in hand soon after a ride, and not after several days as in case if they accept payments routed via wallet operators.

But now with the FPS coming in place, taxi drivers, as well as other local merchants who refuse to go digital, will be encouraged to change their ways.

That will, in turn, help Hong Kong march ahead on the road to a cashless society.

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EJ Insight writer

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