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Andy Mukherjee, Columnist

Hong Kong Cabbies' Love of Cash Stymies Fintech Ambition

The city's taxi drivers are addicted to banknotes — and that's bad PR for the financial center flexing its cashless muscles.

Show me the money.

Photographer: Lam Yik/Bloomberg

The journey to a cashless Hong Kong is going well, that is until someone gets into a cab without first checking the money in her wallet. Chances are, she will be out the door in less than five seconds.

Digital payments have made a big dent into the daily lives of the city’s 7.5 million residents; the use of physical currency has fallen to just 9% of value transacted at stores, among the lowest in Asia. Yet, visitors’ first encounter with this promising fintech hub is still very likely to be through taxi drivers who accept only banknotes.

Start with the city’s many successes. In September 2018, Hong Kong rolled out its so-called Faster Payment System, or FPS. Six years later, nearly 5 million mobile-phone numbers and 2 million email addresses are linked to one or more bank accounts. What began as a way for individuals to pay each other small values across banks is now widely used to settle invoices, utility bills, taxes and fees in real time. Turnover is on its way to exceed HK$4 trillion ($515 billion) this year, or about 1.3 times the size of Hong Kong’s economy.

The coming 12 months will bring even brisker activity, as the city connects its FPS to a similar system in China. A link with Thailand has taken off. Visitors from Hong Kong are using their Hong Kong dollar bank accounts not only to buy trinkets or snacks in Thai baht, but also to pay for fine dining, dental care, and even golf lessons.

China is the pioneer of paying by scanning QR codes: According to the latest Worldpay Asia-Pacific report, two-thirds of the point-of-sale spending in the world’s second-biggest economy is done this way, the highest in the region. Expect Hong Kong’s figure for digital wallets, currently at 27%, to start converging with the mainland. The use of plastic will go down.

How People Pay in Asia

Hong Kong's cash usage at stores has fallen close to China's levels. It's lagging the mainland in digital wallets.

Source: Worldpay Global Payments Report 2024

Note: *POS refers to point of sale. The figures show percentage of transaction values. Totals may not add to 100 because of rounding.

Yet, the one area where the smartphone is proving to be rather dumb is transport — or, to be precise, the local taxi network. Earlier this year, Octopus Holdings Ltd., which manages the contactless card used widely to pay fares on subways, buses and trams, began a program to encourage taxis to offer passengers more options, including UnionPay and Ant Group Co.’s Alipay. Separately, the Hong Kong government’s innovation fund backed the pilot of a new smart meter that would enable more than 20 types of payments. Yet, the cabbies remain notoriously cash-loving.

Maybe the drivers want to hide the full extent of their earnings from the taxman, or perhaps they fear that online payments will rob them of the extra money they make from rounding up their fares. The only time they have accepted anything other than cash from me is when I hired one of them via the Uber app.

Whatever the motivation, their resistance is now just bad PR for a city whose digital chops are on display at Hong Kong Fintech Week, which ends today. Even aside from the cross-border links with Thailand and China, the city has lots to showcase, including new policy guidelines for use of artificial intelligence in finance, and tax breaks for investment in digital assets.

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Those proposed tax concessions could fit in nicely with the current craze for “tokenization.” A wave of experimentation is exploring the idea that revenue streams from real-world assets, such as electric-vehicle charging stations, could exist as funds on a controlled blockchain network. People would then be able to invest in them with tokenized version of their bank deposits. These can be programmed to change hands according to self-executing computer code, a.k.a. “smart contracts.” Hong Kong is at the cutting edge of several such pilots.

Going Digital

Hong Kong's smartphone-based "Faster Payment System" has nearly matched year's real-time turnover in the first nine months of 2024*

Source: Hong Kong Interbank Clearing Ltd.

Note: *Only includes Hong Kong dollar payments, not Chinese yuan. Excludes batch-mode payments.

At the same time, the city’s monetary authority has created a sandbox, where prospective issuers of stablecoins can learn the regulatory ropes without handling public funds. In many ways, tokenized bank deposits and stablecoins — or cryptocurrencies that peg their values to fiat money issued by central banks — are competing ideas. But Hong Kong doesn’t care. While rival Singapore’s early and enthusiastic embrace of crypto has left the city-state licking its wounds after the meltdown of 2022, Hong Kong is pressing on. Its approach is to let a thousand flowers bloom. The opportunity to pick winners may come later.

Still, the time to do something about the obvious laggard is now. The Hong Kong taxi ride is in urgent need of a digital upgrade. I had expressed a hope, around last year’s fintech week, that e-HKD, the proposed paperless version of the official currency, could emerge as an acceptable substitute for banknotes in paying cab fares.

However, with the digital-money discussion having turned toward deposit tokens, it doesn’t look like an electronic Hong Kong dollar is making an appearance any time soon in retail wallets. I envisage using e-CNY, the official Chinese digital money, before I get my hands on e-HKD. In the final analysis, Hong Kong’s journey to a less-cash society is moving forward. However, it won’t be complete without the cabbies first agreeing that kicking passengers out for being low on cash is a bad idea.

More From Bloomberg Opinion:

  • China’s Blind Box Magic Breeds Millions of Peter Pans: Shuli Ren
  • Nobel Laureate Myron Scholes on How to Fix Fintech: Nir Kaissar
  • Can Cash Still Make You a King?: Howard Chua-Eoan

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    This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Previously, he worked for Reuters, the Straits Times and Bloomberg News.
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