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HongKong> Opinion> Content
Monday, September 24, 2018, 11:18
New payment system keeps HK in forefront
By Ken Davies
Monday, September 24, 2018, 11:18 By Ken Davies

The Faster Payment System, launched by the Hong Kong Monetary Authority on Sept 17, will bolster the city’s leading regional role in the international financial system. From the end of this month, customers in Hong Kong will be able to make and accept immediate fund transfers and payments seamlessly on their smartphones.

Hong Kong residents nowadays take for granted the ease with which they can make payments, transfer funds, and exchange currencies — an ease that looks astounding to people in many other “developed” economies. 

For instance, since its launch as a means of contactless transport ticketing in 1997, the Octopus card has become a means of payment in shops and restaurants in Hong Kong, used regularly by over 99 percent of the population aged 15-64. For comparison, a similar system, the Oyster card, which began life in London six years after Octopus, has failed to gain currency in shops and is now being superseded even in the London Underground by contactless bank cards. In New York City, the MetroCard has a prehistoric magnetic strip that means it has to be swiped (and often reswiped as the user is chided for doing it too fast or too slow) when the user enters the subway, while contactless bank cards have been abandoned in the US because of disuse. Apple Pay and Google Pay so far remain largely “aspirational” in the US, where shoppers have only recently been getting used to “chip and pay” systems.

Unlike in other parts of the world, where account holders frequently have to wait a day, or several days, before they can use funds deposited in their account, Hong Kong has for some time had a system that is effectively a same-day transfer system. The Real Time Gross Settlement (RTGS) system was set up in December 1996 as one of the efforts to strengthen Hong Kong’s banking system in the wake of the disastrous banking crisis of 1983-86, in which seven local banks failed; they had to be rescued by the government or taken over by other banks. 

RTGS was Asia’s first internationally compliant payment system to provide real-time settlement across the books of the HKMA, Hong Kong’s de facto central bank. The average daily turnover of the Hong Kong dollar RTGS system has since tripled from HK$340 billion in 1997 to almost HK$920 billion today.

And, as makes eminent sense in a territory where you can hold bank accounts in many currencies, Hong Kong is now the only place in the world with RTGS systems in four currencies. RTGS systems for the US dollar, the euro and the renminbi were added in 2000, 2003, and 2007 respectively. Average daily turnover of renminbi RTGS is now 940 billion yuan (US$137.4 billion, or HK$1,073 billion) — even larger than the Hong Kong dollar RTGS!

Yet despite the success of RTGS, the payments system has not been nimble enough to cope with the increased use of stored-value facilities (SVFs), known as e-wallets, since they were first licensed by HKMA in 2016. Bottlenecks remained in three areas: small-value transfers across different banks; e-wallet top-up from bank accounts; and fund transfers across different e-wallets.

The Faster Payment System, launched with the support of the banks and SVF operators has six advantages: It will operate 24/7; it’s free (for personal customers with small transactions); all you need is a mobile phone number or email address to make payments and fund transfers; there is full connectivity between banks and e-wallets as well as among different e-wallets; all Hong Kong dollar transactions across banks will be settled in real time via banks’ accounts maintained with the HKMA, with statutory backing to the finality of their settlement, so the system is robust and secure; FPS supports both the Hong Kong dollar and the renminbi. 

Want to accept payment through FPS? You can now register with most e-wallet operators participating in FPS and link your mobile number or email address with your chosen bank account or e-wallet. The FPS will be fully activated on Sept 30.

Want to pay through FPS? No need to register, just log in to the mobile app of your bank or e-wallet and use the “transfer” function.

To make life even easier, the HKMA has additionally launched a Common QR Code Standard for Retail Payments in Hong Kong, together with a free mobile app entitled the “Hong Kong Common QR Code” (HKQR). Download this now by searching for “HKQR” in your Apple App Store or Google Play Store on Android. This makes life easier for small shops, which no longer have to display multiple QR codes.

What will be the popular name for this system? The HKMA has taken the risky path of suggesting zyun sou fai, which means “rapid turnover”. This term has advantages: The characters it uses make sense equally in Cantonese and Mandarin; it has three characters, so rattles easily off the tongue; and it was coined by the HKMA, so it will be used by government and businesses. However, Hong Kong people have a habit of making up their own “catchy and apt” (and not always polite) names for such innovations, especially if there are teething troubles to complain about. 

I wish the FPS a smooth and problem-free rollout.

The author is the former chief economist, Asia, chief China economist, and bureau chief for the Economist Intelligence Unit in Hong Kong.

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