Winning Hong Kong’s Merchant Payment War – Revisiting the Battle Plans of Hong Kong’s E-Wallet Providers
This report looks in detail at the e-wallet landscape in Hong Kong, providing an in-depth overview of e-wallet payment trends, the competitive landscape, and some of the challenges facing local providers on their path to profitability.
This report examines Hong Kong e-wallet providers’ merchant acquisition and monetisation journeys, including their current strategies, pertinent challenges, and potential pathways for growth.
Of the 13 non-bank Stored Value Facilities ("SVFs") licensees and 4 licensed banks that are also operating SVFs in Hong Kong, 6 operate as full-service e-wallets that support peer-to-peer (“P2P”) and person-to-merchant (“P2M”) payments for both online and offline transactions, including: (1) Octopus, (2) Alipay HK, (3) WeChat Pay, (4) Tap & Go, (5) PayMe, and (6) BoC Pay.
Driven by a change in consumer habits (i.e. a move to e-commerce) brought about by COVID-19 and the distribution of consumption vouchers (exclusively through e-wallets) by the Hong Kong government, e-wallets have established sizeable user bases and seen their P2M transaction value surging by a CAGR of 14% from 2019-22 to reach HKD 249 billion (19% of total GMV). More broadly, e-wallets have transformed the digital payments landscape by delivering greater convenience, connectivity, and offerings to their consumer and merchant users.
Notwithstanding their strong growth trajectory, Hong Kong e-wallets are facing a number of key challenges related to merchant acquisition and monetisation:
Acquisition: E-wallets incurring significant merchant acquisition costs in the form of high marketing expenses and hefty pay-aways to partners (e.g. agents, acquirers). Many are also facing sizeable drop-offs and obstacles in achieving timely activation.
Monetisation: Many merchants remain dormant, reflecting gaps in rewards, engagement, and the offline payment experience, ultimately putting a strain on their revenues. Coupled with insufficient monetisation of their existing offerings (e.g. value-added services) and new offerings (e.g. FX), profitability remains a long way off.
The Way Forward
To address these challenges, we believe Hong Kong’s e-wallet providers should carefully re-evaluate their merchant acquisition and monetisation strategies:
Acquisition: By identifying and targeting merchant segments that offer the greatest potential ROI, e-wallet providers can better customise their merchant acquisition and maintenance model(s), design more targeted marketing campaigns, and establish more nuanced pricing propositions that align with the needs and capabilities of their target merchant.
Monetisation: E-wallets should look to explore additional monetisation opportunities tied to their core payment offerings and expand their ancillary service offerings, including lifestyle (e.g. e-commerce) and financial services (e.g. lending) solutions.
Several lessons can be drawn from successful e-wallets in neighbouring developed Asian markets, including Kakaopay (South Korea) and PayPay (Japan), which have either achieved or are close to achieving profitability.
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