Digital payments – moving towards a cashless society

Rapid technological change is transforming the world we live in, and digital innovation is creating new opportunities for businesses in a wide range of industries. Retail is seeing some of the biggest changes, as the ability to instantly reach customers is disrupting traditional business models and generating fresh avenues for growth.

"For both consumers and businesses, the current pace of digital disruption is making possible what was previously thought unthinkable," said Bonnie Chiu, Regional Head of Sales, Global Banking Corporates, Global Payments Solutions, Asia Pacific at HSBC. She was speaking at a client engagement event in Hong Kong, organised by HSBC in December 2016, which assembled a number of industry experts in both retail and technology to discuss how corporate treasurers can thrive in this period of technological upheaval.

A major challenge for consumer companies is an evolution in the payments ecosystem. Cash and credit cards are by no means the only option, as digital wallets are growing in popularity. At the same time, contactless payments are becoming more prevalent, and biometric solutions that use fingerprints or even retinal scanning are increasingly viable. A corporate treasurer might have a difficult time keeping up with all the latest developments.

With so many new payment solutions hitting the market, it is important to remember that they all share the same goal, which is to ensure that consumers are able to transact in a manner that is faster, safer, and more convenient than in the past. It is a journey that could ultimately end with cashless societies.

As finance and technology become ever closer, a broader range of companies are able to participate in the payment space. HKT Payment, a subsidiary of Hong Kong telecommunications company HK Telecom, is a good example of this trend. As a new entrant to the payment industry, the company is determined to play a disruptive role in the market, said Monita Leung, Head of HKT Payment and the event's keynote speaker.

Retailers have a broader range of channels that they can use to interact with clients, with both online and offline operations working together through click and collect initiatives, while cloud-based solutions facilitate data collection that offer transparency via a single view. "Payments will become an integral part of a seamless experience in the online world," said Ms. Leung.

Digital wallets utilize the convenience of the smartphones to bring benefits to both consumers and merchants. In the taxi business for example, which in Hong Kong is cash only, electronic payments could create financial efficiencies and transparency to drivers and their employers. More broadly, digital wallets can provide financial services to a wider market, including children and young adults who might not have access to a credit card or a bank account.

With around 60 per cent of Hong Kong's retail spending in cash¹, the city still has a long way to go before it becomes truly cashless. Digital payments could help eliminate a number of costs that come from doing business with coins and notes. There are expenses related to producing, storing and transacting cash, while there are also costs associated with managing potential fraud.

"Perhaps the most crucial step is how we are adapting to the new – digitally-led – business environment. We cannot succeed in isolation, we need to collaborate as an ecosystem, and evolve together for a success in the digital world," said Vivek Anand, Regional Sales Sector Head - Technology, Media & Telecom, Global Payments Solutions, Asia Pacific, HSBC. He was speaking as the moderator of a panel discussion that addressed how retail businesses are meeting the demands to become digital.

Bobby Liu, Executive Director at jeweler Chow Tai Fook, shared the challenges faced by a traditional bricks and mortar retailer. Consumers are nowadays just as likely to spend time browsing for products on their laptop or smartphone as they are in a shopping center. And when they do visit a store, they come prepared, as they have already done some online research on the products they are interested in. The business also needs to be ready to accept new payment methods.

"The market has totally changed," said Mr. Liu. "As a traditional retailer we have to learn and adapt."

Even companies with a strong track record in the payment space have to keep on innovating in order to stay competitive. Octopus is an electronic payment system with a very high penetration rate in Hong Kong, and its contactless smart cards can be used on public transportation and in retail outlets.

"All these new technologies mean that we have to continue to innovate and enhance our products because just providing a card payment system is not enough," said Rita Li, Sales and Marketing Director at Octopus Cards. She said that the company has started a few years ago to introduce mobile solutions to its portfolio that would serve a digital-savvy segment of the population, allowing customers to have a choice and expand payment services from offline to online as well as P2P (Person to Person).

For retailers, accepting the latest payment methods is more than just about offering a convenient shopping experience to customers. It is a rich source of data that can be used to better understand consumer behavior, which helps companies sell in a way that is more targeted to the unique needs of individual.

There was general agreement on the panel however that it is important for both retailers and the financial industry to be aware of the sensitivities surrounding data collection and ensure that privacy is always respected. Another issue is making sense of payments data in the most effective way, which will likely involve integrating it with other kinds of information – such as online browsing habits.

"We can get data, but the critical question is how do we turn it into insight?" asked Hailey Wu Sullivan, Senior Director and Head of Marketing, Asia Pacific at Mattel. The costs associated with consumer data have diminished rapidly in recent years, she said, but data without sufficient context, analysis, and understanding is only of limited use.

A company might know that a shopper put something in their cart but did not complete the purchase. That is data. But the insight in this data and the true value only becomes apparent once the relevant insight can be processed to explain why the customer failed to follow through with the transaction.

Corporate treasurers play an important role in ensuring that a company meets the evolving payment demands of its customers. Yet many treasuries are still focused on the traditional definition of corporate treasury activities, such as risk and liquidity management, said Hans van den Bosch, Global Sector Head - Consumer Brands, Retail & Healthcare, Global Payments Solutions at HSBC. "I believe that you should equip yourself, as a corporate treasury, to be able to manage all these new developments that are going on."

Versatility is essential, as it is still too early to say which business model will triumph in the future. Furthermore, established practices will be overturned, sometimes with surprising results. Mr. van den Bosch cited the example of a successful online bookstore that is starting to open bricks and mortar outlets. "It is all about flexibility and reaching the consumer to make sure they get what they want."

Banking partners will also develop over time, and financial technology companies are introducing innovative solutions – especially in the payments space. Many of the traditional processes of a corporate treasury however, have yet to become digital. This creates a mismatch between the digital demands of the consumer and the day-to-day offline practices of a corporate treasurer.

"The challenge is to bring tomorrow's technology, to today's businesses, to people who are yesterday," said Raof Latiff, Regional Head of Product Management, Global Payments Solutions, Asia Pacific, HSBC.

Although FinTech companies are already starting to disrupt a range of financial activities, it is worth bearing in mind that these startups typically offer a solution to a particular problem. The long-term future of banks is secure, said Mr. Latiff, because FinTech companies are reliant on the banking industry's infrastructure, which is fundamental to moving money and transfer information. This includes SWIFT and Automated Clearing House (ACH).

HSBC recognizes the transformative role that FinTech are having on the financial industry and is working hard to aggregate the best solutions and provide them to its treasury clients, said Jason Tan, Regional Head of Client Management, Global Payments Solutions, Asia Pacific at HSBC.

Technology is only half of the story, he said, as HSBC continues to invest in its people – especially in sales advisory, implementation, and importantly, client servicing. "Our people is a differentiating factor for HSBC that goes hand-in-hand with technology."