For mainland Chinese, a visit to Hong Kong feels like a voyage back in time. At home they spend weeks without a visiting an ATM or a bank. They use mobile wallets to pay for meals, bills and cabs, or even donate to beggars; they invest their unused balance in money-market funds, still using their smartphone. But when they cross the border into the special administrative region, they leave such conveniences behind.
Cabs accept only cash. Not all small shopkeepers take cards, and they often charge extra if they do. Outside of big chains, mobile-payment penetration is shallow. Even as the People's Republic charges into e-commerce, mobile payment, and online peer-to-peer lending, Hong Kong still shops on foot and pays with paper and coins. The latter accumulates in pockets so heavily that special government trucks drive around buying up spare change.
A Hong Kong Monetary Authority study shows the former British colony is oddly cash-intense. The average person held nearly $6,000 in 2014, second only to Switzerland.
To be fair, there's been no wholesale rejection of electronic money. Cards are used heavily and internet banking is ubiquitous. Even so, the financial centre, consistently found near the top of global competitiveness rankings, lags when it comes to innovation in financial technology.
The irony is that officials are eager to bag flotations of mainland companies like Alibaba affiliate Ant Financial and Lufax. But they have been slow to allow those companies to roll out systems. The first licenses for mobile-wallet apps were granted to Apple, Android Pay, Tencent and others in 2016. Alibaba's Alipay launched its localised app in May, more than a decade after starting on the mainland. Twenty years after Hong Kong's reunification with the mainland, in consumer-facing fintech at least, the city looks a decade behind.
Institutional conservatism
And it's not just the consumer side. A recent survey by PwC showed local financial institutions invest far less in fintech than counterparts in mainland China. The city risks stagnating as money pours into areas like blockchain technology and transaction security.
To be sure, culture plays a part. Cash has always had symbolic value in Chinese society. And some explanations for the imbalance are to Hong Kong's credit. Many of the problems China is busy leapfrogging via fintech - rickety traditional banking services, difficulty obtaining credit cards, and horrid retail experiences — aren't pressing issues for Hong Kongers.
They live in a compact city saturated with air-conditioned malls, so consumer demand for e-commerce and electronic payments is less urgent. In addition, for 15 years Hong Kongers have relied on a simple rechargeable card system, Octopus, for public transit and small purchases. Recharging Octopus is clunky, and it's hardly accepted everywhere, but its low-tech handiness may have bred complacency.
Moreover, much of the demand for physical dollars comes from mainlanders, who have trouble using their mobile apps and UnionPay cards. Capital flight into the Hong Kong dollar - which is pegged to the US dollar — is another driver.
Image problem
There are less benign obstacles. The PwC survey showed executives saw "regulatory uncertainty" as the top challenge for fintech in Hong Kong. Institutions, be they cab companies, banks, or mall developers, don’t want to be disintermediated. They have little to gain from a China-style financial revolution, and they can lobby effectively.
That the city's cabbies were able to fend off Uber is uninspiring to entrepreneurs. The banks earn plenty from deposits, credit-card issuance, and ATM fees. Mall owners look at China and see a nightmare: e-commerce killing rents. Their resistance, however, has created an embarrassing image problem for a city that is fighting for dominance among Asian financial hubs.
A wider problem with creativity is slowing development. Hong Kong has slid in the Global Innovation Index for four years, and now ranks far behind Singapore. Official support for entrepreneurs is lukewarm, and they struggle to find talent: the need to pay stratospheric rents drives most smart young people into the arms of giant institutions.
The HKMA is belatedly snapping into action. Last year it established a Fintech Facilitation Office to develop a local ecosystem. Octopus is upgrading itself. Now if only the cabbies would get on board, the city could stop running the coin-collection trucks.