Behind a simple swipe of a credit card or the use of a mobile phone for payment in a shop, are intricate processes running 24 hours a day. In Hong Kong, the pace of consumer adoption and market innovation in relation to mobile payments is uncertain, says Ajmal Samuel, founder of payment services firm OCTO3, one of the back-of-house businesses enabling such commerce to occur.
“There are at least five to six players [entities] behind each transaction you make” as a consumer, Mr Samuel said in an interview with Innovation Hong Kong.
Hong Kong-based OCTO3, serves as a technological hub to connect the dots between merchants, consumers, branded-card networks and financial institutions across the world.
Innovation in the digital payments sector is progressing quickly around the world, but Hong Kong is an exception, Mr Samuel suggested.A survey by the Hong Kong Productivity Council indicated that 70 percent of respondents had never used a mobile payment system. The aggregate value of digital payments in Hong Kong stood at nearly US$14.58 billion in the first month of 2019, a fraction of China’s US$1.56 trillion, according to Statista, a Germany-based online portal for statistical information. “The reason digital payment in Hong Kong lags behind lies in our [consumers’] wallets,” Mr Samuel said as he displayed a raft of credit cards in his own pocketbook. “The e-wallet I use the most is Apple Pay and yet it directs back to my credit cards.Hong Kong is hugely underserved when it comes to digital payment because there’s not enough support by the government and local stakeholders,” he added. While Hong Kong is following in Singapore’s footsteps in terms of FinTech innovation, the Hong Kong government “has a long way to go in providing a sustainable ecosystem for payment start-ups,” the businessman stated. This leaves little room for such businesses to grow locally.“Hong Kong’s economy can’t really move forward because we are not geared up for innovation. Most innovation in the city never gets a chance to enter the market,” said Mr Samuel. He added: “Hong Kong is one of the most expensive places to operate but the market is small. Without enough support by the government and stakeholders, entrepreneurs move somewhere else.”Last year, Hong Kong slipped from 14th to 16th place in the annual Global Innovation Index, while regional rival Singapore climbed to 5th place from 7th in the previous year.
Deep-rooted habits
A reason for the lacklustre adoption by Hong Kong consumers of digital payment methods, noted Mr Samuel, was the entrenched position of plastic cards – either stored-value or bank-issued credit or debit cards – compared to emerging markets, where consumers might never have been issued with such payment tools. Approximately 186 million card transactions were recorded in the third quarter 2018, representing a 16.6-percent increase from the same period a year earlier, according to the Hong Kong Monetary Authority.
“The Octopus card is a problem for the growth of the virtual economy in Hong Kong,” Mr Samuel told Innovation Hong Kong.“The government-owned payment method has been around for years, but we haven’t seen many innovations in it,” he stated. “Right now the Octopus card is a closed-loop ecosystem; the minute they open up to different parties such as Mastercard, Visa or local wallets, they lose transactions immediately. It doesn’t make any strategic or economic sense for Octopus card to innovate.” Octopus, a stored-value card payment system, launched in 1997. An aggregate of 34.4 million cards was in circulation as of December 2017, according to the company’s latest annual report. Payment via Octopus was available at about 22,000 outlets across the city as of that date.
A Hong Kong Productivity Council survey indicated 97 percent of respondents prefer to use Octopus cards to settle their payments. Alipay and WeChat Pay were ranked second and third, with 22 percent and 19 percent respectively.
To improve the opportunities for interoperability among city-based stored-value card systems across the region, Mr Samuel developed in 2010 a technology to that end. It is said to allow cross-border credit transaction in contactless stored-value smart cards, whereby users can convert credits between cards from different jurisdictions via their mobile device.
He said however: “Innovation like this won’t go anywhere because the stakeholders don’t want it. I designed such a product for Octopus cards; Singapore [-issued stored-value] cards; and a few city cards in China, but they did not buy into the idea.”
Smart finance
Payment technology has the potential to be a building block for Hong Kong to become a smart city in terms of upgrading its financial services sector, said Mr Samuel. Nonetheless, for there to be sustainable growth locally in this field there needed to be a robust back-of-house ecosystem. This would assist the development of services disruptive to traditional payment services providers such as banks, but that were nonetheless vital to a modern digital economy, said Mr Samuel. They included initial coin offerings, virtual banking, online lending and Insurtech.He noted however that the local payment market was dominated by Chinese tech giants Alibaba and Tencent, with their AlipayHK and WeChat Pay products aiming to acquire a greater number of local users.
Despite the odds, some local e-wallet operators were finding a niche, Mr Samuel said.TNG FinTech Group, a local e-wallet operator founded in 2015, had gained a solid footing in Hong Kong with a reported valuation of more than US$500 million, he noted. It was reportedly the first e-wallet to provide cash-withdrawal services at convenience stores in the city.“TNG is a huge success in Hong Kong but its main market is the Philippines and other Southeast Asian countries, not Hong Kong,” pointed out Mr Samuel.
The businessman stressed that the Hong Kong government was moving in the right direction, citing the Fast Payment System (FPS), a real-time, gross-settlement payment system launched by the Hong Kong Monetary Authority last September. It is said to have given a significant boost to the digital-transaction sector.“Before the system was launched, a transaction could not be completed until the money was moved to the targeted bank.
Now gross settlements happen in real time, either bank-to-bank or [via] peer-to-peer money transfer. It makes mobile payment much simpler,” noted the businessman.
Mr Samuel’s OCTO3 was established in 2014, and is a cloud-based, business-to-business payment service, working with organisations including banks and “white-label payment acceptance platforms”.
OCTO3’s work encompasses e-commerce payment, electronic funds transfer (EFT), tokenisation, mobile wallets and prepaid debit services.
The firm – which describes itself as “TechFin”-based – gained a foothold in Hong Kong by providing some European payment providers access to Chinese banks and clearing houses.OCTO3’s Mr Samuel stated: “As of today, we have around 200 payment methods connected all over the world, starting from Latin America to Mongolia.”
The majority of the firm’s trade comes from Europe, China, Indonesia and Thailand, according to its founder. The firm’s technology is currently used in e-payment systems in public taxis in Singapore.