Mobile payment sector is relatively less developed.
The Hong Kong Monetary Authority (HKMA) has awarded its first batch of SVF licences to five firms, including dominant mobile operator Hong Kong Telecom (HKT), for the operation of stored value facilities and third-party payment systems according to the new Payment Systems and Stored Value Facilities Ordinance.
According to a research note from BMI Research, under the new guidelines, only users with a stored value of more than HK3,000 (USD387) need to register with their real names.
The HKMA says it is considering a further 10 SVF operators for the second batch of licensing which will take place before November 13 2016, after which unlicensed third-party payments operators will need to suspend their services.
Other than Octopus, the four other licensees operate non-device based SVFs, which were previously unregulated in Hong Kong. This is a relatively new concept in the Hong Kong Special Administrative Region (HKSAR), with the four licensees (excluding Octopus) only having entered the market over the past year or so.
Hong Kong's mobile payment sector is relatively less developed than mainland China's, and a 2015 MasterCard survey found that just 14% of Hong Kong residents preferred to use digital wallets for their online purchases, contrasted with 62% in mainland China. However, the licensing of China's two leading providers, WeChat Pay and Alipay, could see the duo disrupt the market by launching innovative services catered for Hong Kong consumers.
Here's more from BMI Research:
While the two Chinese providers have an extensive presence in Hong Kong (Alipay is accepted as a payment option at some 6,000 merchants as of July 2016), they have limited their operations in the country to cater for Chinese tourists. Gaining licenses (and paying fees) from the HKSAR could incentivise them to launch moreservices in the local market, in which they can leverage cultural and lingual similarities.
With 88% of all mobile subscribers on 3G/ 4G networks and 70% of the mobile market postpaid, smartphone-based value added services can strengthen ARPU and reduce churn. Developing such value-added services (VAS) can also help operators defend subscriber market share from the rising threat of MVNOs, which have been able to grab 10.8% of the market as of Q116.
However, operator-led mobile payment platforms will face challenges in gaining mass-market traction. HKT's recent tie up with Apple Pay has enabled the operator to extend its Tap & Go service, which was previously only available to NFC-enabled Android device users. Tap & Go credit is added by purchasing a physical prepaid credit card, which can be loaded into a user's account within the mobile app.
The app offers an integrated platform for users to conduct various mobile financial services (MFS), while also aggregating discounts and loyalty points from different merchants. However, as the product was launched in partnership with MasterCard, Tap & Go offers little differentiation from usual physical credit cards for merchants as they will incur the same transaction fees as traditional credit cards. This is a limiting aspect which could see third-party platforms gain more traction than operator-led MFS. For example, two other operators - SmarTone and Hutchison - also offer similar NFC mobile payment apps for their subscribers on Android devices, but they will not need to be licensed as their apps host digital credit card information instead of storing value.
In the medium-term, we expect competition to be driven by third-party MFS providers rather than operators. Alipay claims to have gained substantial traction in the market with around 25% of Hong Kong residents having used the platform. TNG Wallet is the largest operator and card-agnostic e-wallet, the only ewallet payment options for taxis, and also claims to be the largest P2P network, having gained more than 370,000 registered users in less than a year. But the volume of competition will be restricted by the new guidelines.
In order to qualify for a licence, companies need to have a minimum HKD25mn (USD3mn) in capital and pay HKD100,000 as an annual license fee. This could deter start-ups from competing in and disrupting the sector, which can instead create the opportunity for operators to collaborate with smaller fintech innovators to develop their MFS offering.
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