A Changing Payment Landscape in Hong Kong?

The Hong Kong Monetary Authority (HKMA) monitors payments closely. During 2020 there were some interesting variations that HKMA will track in 2021. The priority for 2021 will be to monitor and understand what is happening across a range of indicators so that HKMA can manage the appropriate supply of banknotes.

So says Samson Yuan, Division Head at HKMA, who made the following observations to Cash & Payment News™. 

Demand for cash continues to increase

Between December 2000 and December 2020, the value of notes in circulation (NIC) grew 4.7 times and the volume grew 1.5 times, with the difference driven by the number of the two top denominations in circulation ($1,000 and then $500). Growth in NIC was higher in the period 2010 2020 than it was in 2000-2010 and has continued at a healthy 8% in 2020 despite the pandemic.

Clearly economic activity drives cash usage and is important in all countries. Hong Kong has enjoyed strong growth this century and its economy has weathered the pandemic remarkably well to date, and this is reflected in the data.

For Hong Kong, the number of visitors, the substitution effect of the e-wallet and demand for their notes in mainland China are all important demand drivers. It is estimated that the external demand for Hong Kong dollars (HKD) was 59-72% in 2015 but had increased to 65-76% in 2019. Again, this is believed to be mainly $1,000 and $500 notes.

The impact of electronic payments

Another driver of NIC is the impact of increasing use of electronic payments, including the Faster Payment System (FPS) launched by HKMA in 2018 to address the increasing market needs for more efficient retail payment services.

The FPS enables customers of all banks and e-wallet operators to make cross-bank/e-wallet payments easily, by entering the mobile phone number or the email address of the recipient, with funds credited to the recipient's account or e-wallet almost immediately. The FPS has been well received.

At end 2020, the FPS recorded 6.9 million registrations (compared with Hong Kong's population of 7.5 million), up by 71% or 2.9 million registrations from end 2019. The number and value of HKD transactions through the FPS in 2020 are 233% and 108% higher respectively than those in 2019. This may be one of the reasons for the lower rate of increase in NIC in 2018 2020 as shown in Chart 1 above.