2019 J.P. Morgan Global Payment Trends

2019 Global Payments Trends Report - Hong Kong Region Insights

HONG KONG INSIGHTS REPORT


Hong Kong is a highly banked, wealthy region that enjoys excellent digital and physical infrastructure, both of which will support future e-commerce expansion. However, a historical legacy of bricks-and-mortar commerce ensures that this growth will be less than stellar. To help our clients locate, attract and keep their customers, we have tracked and assessed e-commerce developments in 34 mature and emerging markets around the globe.

Introduction

 

Hong Kong’s economic growth slowed in 2018 after a strong start in the first quarter. Financial conditions are not helped by prolonged China-U.S. trade tensions and rising interest rates, which have brought a cooling of the housing market.1 A lack of buoyancy in the Chinese economy may cause gross domestic product growth in Hong Kong to slow further to 2.7 percent year-on-year in 2019.2 Despite this, Hong Kong’s e-commerce sector is expected to remain strong, growing at a compound annual growth rate of 10.2 percent to 2021.3

This document is based on projected figures and is subject to change at any time.

A compact city-state slow to adopt e-commerce

 

The Hong Kong business to consumer e-commerce sector is worth $3.7 billion,14 representing one of the smaller e-commerce markets, by value, included in our report series. Nevertheless, Hong Kong is notable for its advanced e-commerce infrastructure and good growth potential: its online shopping market is projected to expand at a compound annual growth rate of 10.2 percent to 2021.15

The potential of this market is reinforced by the fact that the majority of the population is yet to even use e-commerce, but this suggests both a challenge and an opportunity for merchants. Only a quarter of Hong Kong’s citizens currently shop online,16 and e-commerce accounts for just 11 percent of Hong Kong's total retail spend.17 In contrast, in mainland China, e-commerce takes a 23.1 percent share of the overall retail market.18 Hong Kong’s compact metropolis lacks the rural population that typically looks to access the wide-ranging retail choice e-commerce offers.19 As with fellow city-state Singapore, high population density and a largely urban geography acts as a hurdle to e-commerce growth, as most of the populace enjoys easy access to physical stores.20

 

International merchants offered significant opportunity through cross-border sales

 

That said, when Hong Kong citizens shop online, they are willing to spend: the average annual online spend is robust, at $1,992.06.21 Travel, health and beauty, and consumer electronics are the top three spending categories.22

Internet penetration is high, at 89.4 percent,23 the highest of the non-European countries included in our report series.* This will facilitate the growth of online shopping, but the efforts of domestic retailers, which have so far been resistant to transitioning to e-commerce platforms, are also required.24 This is changing, however. In 2018, just under a third of surveyed Hong Kong chief executives said they were planning to increase investment in their e-commerce and online sales operations by 20 percent or more.25 Online sales platforms are also helping drive domestic merchants into the market by offering them a route into e-commerce.26 Popular platforms include WeChat, Alibaba’s Taobao, JD.com, Tmall and Amazon.27 International e-commerce providers could find success by collaborating with, or providing solutions for, domestic players.

As a consequence of lower domestic investment into the e-commerce space, and perhaps the small region's relatively lower range of online merchants compared with neighboring e-commerce giant China, cross-border spending is high: 75 percent of Hong Kong’s online shoppers have made a purchase from overseas.28 Cross-border spending constitutes the majority of the region's online purchases, at 60 percent of total e-commerce spend or $2.2 billion in sales.29,30 The most popular regional sales markets are China, Singapore and Japan.31

Encouragingly, as demand for online shopping increases, the infrastructure is already in place to meet higher delivery volumes. Hong Kong is placed 12th in the World Bank’s global ranking of logistics capabilities and quality, one of the highest rankings of the international countries included in our report series.*32 Only Singapore ranks higher.33 This should enable merchants to meet customer expectations around delivery, and to expand their business smoothly.

High penetration, but low app uptake in mobile market

 

Mobile commerce accounts for over a third (36 percent) of all e-commerce transactions in Hong Kong.34 This rate is lower than China (76 percent)35, India (46 percent)36 and Singapore (42.3 percent)37 but places Hong Kong at a similar level to major Western e-commerce markets such as Canada and the U.S. (36 and 38 percent, respectively).38,39 The mobile commerce market is forecast to reach a value of $1.6 billion by 2021.40

Increased mobile commerce sales will be supported by good smartphone penetration, which, at 75 percent,41 places it on a par with Singapore.42 This nevertheless means that a quarter of its population does not own a smartphone, offering further opportunities for growth.

Apps are relatively under-utilized. They are used in only 14 percent of completed mobile commerce transactions;43 in contrast, in China the rate is 67 percent.44 A lack of investment from domestic merchants presents international merchants with an opportunity to make their mark.45 Google, for example, has already highlighted both the need for increased talent in the Hong Kong mobile commerce industry, and a lack of apps able to provide access to a wide range of goods and a frictionless transaction process.46

 

A region with enthusiastic credit card and digital wallet users

 

Cards are the leading way to pay online in Hong Kong, used for just under half of all e-commerce payments,47 or $1.8 billion in annual sales.48 More specifically, the payment market is dominated by credit cards, with Visa®, Mastercard® and American Express all well-utilized and recognized brands.49 Hong Kong residents are comfortable with taking on debt, perhaps as a result of enjoying strong financial buffers: its citizens have one of the highest net-worth-to-liabilities ratios globally.50

Ownership of credit cards significantly outweighs debit cards. There are 2.67 credit cards per capita, compared with just 0.81 debit cards per capita.51 The reasons for this include a culture of paying for domestic bills and daily transport with credit cards, and an appetite for rewards linked to credit card use, such as cashback and air miles programs.52 Bank account penetration is high, at 95.3 percent.53 To capitalize on the local appetite for cross-border spending with China, domestic banks offer multi-currency cards that allow payments to be settled in a choice of currencies.54

 

Digital wallets rising in prominence

 

Digital wallets are the second most popular payment option in Hong Kong, used for a quarter of all e-commerce transactions, or $0.9 billion annually.55 Digital wallet transactions are expected to grow faster than card transactions to 2021, expanding at a compound annual growth rate of 32 percent.56 By this point, they are expected to overtake cards to become the primary online payment method in Hong Kong. The most-used digital wallet brands include PayPal® and AliPay.57

Bank transfers occupy a 10 percent share of the market,58 but this payment method will rise in the years to 2021, at a compound annual growth rate of 28 percent.59 This could be explained in part by the rise of online subscription services and digital wallets that enable direct bank payments.

Faster payments were introduced in Hong Kong in September 2018 with the launch of its state-backed Faster Payment System. Citizens can transfer funds 24/7 with the money available almost immediately. Funds can be transferred via a mobile number or email address acting as account proxy for the payee. The Faster Payment System supports Hong Kong dollar and renminbi payments.60 Merchants can benefit from instant deposits into their account from payees and the integration of the scheme into digital wallet platforms.61

 

Fraud rises in line with growing online spend

 

Hong Kong police authorities have said that reported incidences of e-commerce fraud jumped by 32 percent in the year to November 2018.62 Rising e-commerce uptake was the reason given for the increase.63 Security is also at the forefront of Hong Kong citizens’ concerns when shopping via mobile. They have the least confidence in the security of electronic payments out of the greater China region.64

 

Key takeaways

 

Cross-border spending is high among Hong Kong consumers, with China unsurprisingly the most common ‘foreign’ shopping destination, although Singapore and Japan are also popular options. International merchants can take advantage of high-quality infrastructure already in place in Hong Kong. Like fellow city-state Singapore, Hong Kong scores highly in the World Bank’s global ranking of logistics capabilities and quality.  This should enable merchants to meet customer expectations around delivery, and to expand their business smoothly. Cards are the leading way to pay online in Hong Kong, used for just under half of all e-commerce payments, but the growth of digital wallets could make them the primary payment method for online shopping by 2021.

 

Data may vary from historical figures, due to certain categories being re-stated as new information sources have become available.

* J.P. Morgan 2019 Payments Trends – Global Insights Report series includes the following countries: Australia, Brazil, Canada, China, Hong Kong, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Singapore, Thailand, Turkey, U.S., Vietnam.

Global Payments Trends Reports

International e-commerce success can hinge upon understanding the needs, nuances and growth patterns of individual nations. J.P. Morgan’s Global Payments Trends Reports aims to offer merchants the knowledge they need for global success through in-depth, country-by-country analysis.

For more information, please contact:

Your J.P. Morgan Relationship Manager or visit: https://www.jpmorgan.com/country/US/en/merchant-services/payment-insights

 

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© 2019 JPMorgan Chase & Co

1 Economic Research, J.P. Morgan Chase Bank, February 2019.

2 Economic Research, J.P. Morgan Chase Bank, February 2019.

3 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via China Daily, June 2017: ‘E-Commerce boom - it all started in HK’.

4 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank.

5 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via CIA World Factbook.

6 World Bank Open Data. ‘Hong Kong.’ Accessed February 2019.

7 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Thought Leadership by Sirley Yuan: eCommerce booming in Hong Kong, 2017.

8 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

9 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Nielsen, ‘Hong Kong Consumer Embraces Ecommerce Development’, 2018.

10 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2018.

11 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

12 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2018.

13 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Hong Kong Monetary Authority, 2018.

14 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Thought Leadership by Sirley Yuan: eCommerce booming in Hong Kong, 2017.

15 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via China Daily, June 2017: ‘E-Commerce boom - it all started in HK’.

16 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via eShopworld, 2018.

17 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via South China Morning Post, July 2018: ‘RIP: Hong Kong's shopping industry.’

18 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

19 InsideRetail.asia, May 2018. ‘Google chief explains what's holding back Hong Kong e-commerce.’ Accessed February 2019.

20 InsideRetail.asia, May 2018. ‘Google chief explains what's holding back Hong Kong e-commerce.’ Accessed February 2019.

21 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

22 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via HKTDC Research & Statista, 2018.

23 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2018.

24 InsideRetail.asia, May 2018. ‘Google chief explains what's holding back Hong Kong e-commerce.’ Accessed February 2019.

25 KPMG.com, November 2017. ‘Outlook for e-commerce in Hong Kong.’ Accessed February 2019.

26 KPMG.com, November 2017. ‘Outlook for e-commerce in Hong Kong.’ Accessed February 2019.

27 KPMG.com, November 2017. ‘Outlook for e-commerce in Hong Kong.’ Accessed February 2019.

28 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

29  J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Go-Globe E-commerce Statistics and Trends, 2017.

30 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

31 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Ecommerce Foundation, 2018.

32 WorldBank.org, 2019. ‘International LPI: Global Rankings 2018.’ Accessed February 2019.

33 WorldBank.org, 2019. ‘International LPI: Global Rankings 2018.’ Accessed February 2019.

34 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Nielsen, ‘Hong Kong Consumer Embraces Ecommerce Development’, 2018.

35 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via TMOGroup.asia, 2019. ‘Asia China Mobile Commerce.’

36 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via eMarketer, 2017.

37 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via E-commerce in Singapore Statistics and Trends, 2017.

38 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via The Canadian Internet Registration Authority, 2017.

39 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via United States Ecommerce Foundation Report, 2017.

40 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

41 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

42 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2017.

43 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Nielsen, ‘Hong Kong Consumer Embraces Ecommerce Development’, 2018.

44 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via TMOGroup.asia, 2019. ‘Asia China Mobile Commerce.’

45 RetailNews.asia, May 2018. ‘Google explains Hong Kong’s E-commerce Challenges.’ Accessed February 2019.

46 RetailNews.asia, May 2018. ‘Google explains Hong Kong’s E-commerce Challenges.’ Accessed February 2019.

47 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

48 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

49 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

50 HKMA.gov.hk, September 2018. ‘Understanding Household Indebtedness in Hong Kong.’ Accessed February 2019.

51 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Hong Kong Monetary Authority.

52 EJInsight, June 2018. ‘Contactless payments seen growing in popularity in HK.’ Accessed February 2019.

53 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank.

54 PRNewswire.com, October 2017. ‘Payments in Hong Kong 2017: What Consumers Want?’ Accessed February 2019.

55 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

56 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

57 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

58 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

59 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

60 HKMA.gov.hk, September 2018. ‘The Launch of Faster Payment System (FPS).’ Accessed February 2019.

61 Wavecommerce.hk, October 2018. ‘Faster Payment System (FPS) Explained for Hong Kong.’ Accessed February 2019.

62 SCMP.com, December 2018. ‘Hong Kong shoppers lose HK$40 million to online crooks in 2018 – 146 per cent rise on last year.’ Accessed February 2019.

63 SCMP.com, December 2018. ‘Hong Kong shoppers lose HK$40 million to online crooks in 2018 – 146 per cent rise on last year.’ Accessed February 2019.

64 Colliers.com, April 2017. ‘Mobile commerce on the rise in Hong Kong.’ Accessed February 2019.