A recent survey of Hong Kong people commissioned by PayPal argued that the city was falling behind in the adoption of cashless technologies. Despite near-universal mobile phone penetration, the survey found that only 70 percent of Hong Kong people would consider using e-payment apps, as opposed to 86 percent on the Chinese mainland.
Hong Kong’s “sluggishness” when it comes to e-payment is normally presented as a problem, especially when compared with how much it has taken off on the mainland, India and other economies. But proponents haven’t given many good reasons why turning Hong Kong “cashless” should be a matter of government policy, and why it would be better than what the city already has.
Supporters of e-payments argue that cash is untrackable and untraceable, feeding crime and black-informal markets. Transporting physical cash between banks creates transaction costs. And then there is the inconvenience for both people and merchants of not carrying notes and coins.
But these benefits are rarely quantified. It’s telling that PayPal’s conclusion based on its survey was that payment processors needed to do a better job of explaining the benefits of their services – and did not suggest what those benefits might be.
Then there is the sentiment that “cashless” is the wave of future, like it or not, and Hong Kong risks being left behind if it does not innovate. But the question remains: Why? Why are cashless societies better than ones that preserve a role for cash?
Cash, after all, is a public good. There’s no monetary cost of handling it. It’s physically robust. There is no barrier to entry for using it. And its untrackability is also an asset: no records of payments or purchases that can be hacked by nefarious actors.
It’s also not that inconvenient to obtain cash in Hong Kong. The city’s density of ATMs and banks is high, meaning it can be easy to draw cash on short notice at any time.
Each party in a transaction also knows how much cash is worth. For both buyer and seller $100 is $100. The same cannot be said of credit cards, payment apps or any other “cashless” technology. The buyer may spend $100 but the payment processor charges a transaction fee to the merchant. To the seller, $100 paid through a credit card or an e-wallet is worth less.
It should be noted, of course, that payment processors will be some of the biggest beneficiaries of a “cashless society”. More transactions handled through their services mean more transaction fees and thus greater revenue. A monetary system that preserves physical cash is one that has not been fully outsourced to private entities.
But perhaps the biggest indictment of the “cashless society” argument is that Hong Kong, through the Octopus card, already has near-universal adoption of a cashless technology.
Norman Chan Tak-lam, chief executive of the Hong Kong Monetary Authority, recently noted that, if one counted the 14 million daily Octopus transactions, Hong Kong was no laggard in e-payments. The Octopus card, 20 years after its launch, is still unique in its spread. No other contactless card in another major city is accepted in convenience stores, fast-food outlets, hospitals, pharmacies, parking garages and countless other small-transaction outlets.
The Octopus card also has a lower barrier to entry than other cashless systems. E-wallet apps require smartphones; systems like ApplePay require a smartphone with near-field communication capabilities. Users also need a bank account and credit card. In contrast, all the Octopus card requires is HK$50; an amount almost every person in Hong Kong could afford.
There are certainly things people could do to ease the adoption of newer cashless technologies. The Octopus technology could stand to be updated and upgraded, perhaps integrated with smartphones in some way. The government could also encourage and develop systems that allow for cashless transactions in taxis. Cabs are, interestingly, one of the few areas where public opinion supports paying without cash, with over half saying they were willing to pay a premium for the privilege.
There are reasons why “cashless” systems are becoming popular in places like the mainland and India. They provide a real service in places with a much lower density of bank branches and with lower trust in existing payment systems. India has an added wrinkle in that its low bank note denominations (especially after demonetization) require a large amount of physical cash to be carried around. But these factors don’t apply to Hong Kong.
If e-payment really was useful, people would start to use these services without encouragement. And the argument has not yet been made why e-payment is better as a “cashless” service — and thus deserving of government support — than what Hong Kong already has; the Octopus card.
The author is a researcher working for the Global Institute for Tomorrow, a Hong Kong-based think tank.