The role of Hong Kong Monetary Authority in
supporting retail payments
Cartes Asia 2014
Mr. Esmond Lee
Executive Director
Financial Infrastructure Department
Hong Kong Monetary Authority
20 March 2014
Efficient electronic retail payments stimulate
the real economy
“Migration to electronic retail payments spurs overall
economic development, consumption and trade. Among
different payment instruments, this relationship is the
strongest for card payments.”
Source: Working Paper Series, NO 1572 / august 2013
“Retail payments and the real economy”, European Central Bank
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Increasing acceptance of cards in retail
payments in EU
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The HKMA’s role in retail payment

Promote confidence in Hong Kong's monetary and financial
systems through active participation in international financial
and central banking forums

Promote market development initiatives that help strengthen
the international competitiveness of Hong Kong's financial
services

Maintain and develop Hong Kong's financial infrastructure
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Users’ expectation on payment instruments
Confidence: high level of security
Convenience: easy to use
Cost effectiveness: low transaction cost
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The HKMA’s approach
Laws and regulations

Provide adequate regulations on new payment instruments to protect
users
Standards and guidelines

Facilitate the development of secure and interoperable market solutions
to enhance the user experience
Infrastructure development

Develop core infrastructure for market participants to connect
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Laws and regulations
Regulatory framework for stored value
facilities (SVF) and retail payment systems
(RPS)
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Underlying rationale for the new legislation

Safety and efficiency


Protect and enhance the benefits of the users (especially the float in the
case of SVF)
Foster innovation and competition

Development perspective for the overall benefit of the economy
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Legislation to meet future developments/challenges
Status quo
Future development
C-2-B
Regulation covers only
device based SVF (such
as cards)
Regulation to be extended to
cover non-device based SVF
B-2-B
Stored value limit is a
constraint
More flexible for network
accounts
C-2-C
Implication on AML
Know your customer for stored
value larger than HK$3,000
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Proposed legislative approach
Existing regulatory regime
Multi-purpose stored value card regime
under Banking Ordinance
Proposed regulatory regime
Amend the CSSO to cover the regulatory
regime for SVF and RPS
Device-based SVF
Licensing Regime
Non-device based SVF
Designation Regime
RPS
CSSO
Large-value payment
systems
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Licensing regime for SVF
Mandatory licensing regime

It is an offence to issue SVF without a SVF licence in Hong Kong
Licensing criteria

A company incorporated under the laws of Hong Kong

Principal business in the issuance of multi-purpose SVF

On-going minimum (paid up) capital requirement of HK$25 million
In line with current practices of Banking Ordinance

Licensed banks deemed to be licensed

Single-purpose SVF not required to be licensed

Exemption of certain SVF from licensing
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Designation regime for RPS
Eligible systems:

Operate and provide retail payment services in Hong Kong; or process Hong Kong
dollar or other prescribed currencies (e.g. RMB, USD)
Designation criteria:

A RPS may be designated if any disruptions to the RPS have implications to the
monetary or financial stability of Hong Kong; public confidence in payment systems
or the financial system of Hong Kong; or day-to-day commercial activities in Hong
Kong
Potential coverage:




Credit card schemes
Debit card schemes
Merchant acquirers
Payment gateways
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Standards and guidelines
Best practice for
NFC mobile payment
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NFC mobile payment overview
Hong Kong possesses good market conditions
for NFC mobile payment

High acceptance of contactless payments – 85% of
non-cash transactions are already contactless

High smartphone penetration rate – 90% of mobile
phones shipped to Hong Kong in 2013 are smartphones

Increasing availability of NFC-enabled phones – over
40% of smartphones shipped to Hong Kong in 2013 are
NFC-enabled
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Development objectives
The HKMA promulgates four development objectives to enable the
public to benefit from the innovative services and at the same time
to enjoy safety and security:

Ability to download multiple payment services onto a single NFC-enabled
phone

Payment service continuity despite switching from one mobile network operator
to another operator

Payment service continuity despite changing one’s NFC-enabled phone

High level of security in line with international standards and relevant regulatory
requirements
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Our approach


The HKMA supports a market-driven approach for shared infrastructure
development as it suits the Hong Kong market:

Services can be launched more quickly

More receptive to stakeholders
The HKMA has worked with the Hong Kong Association of Banks to develop a
set of standards and guidelines for the industry to follow. They include:

Technical standards

Security requirements

Operational processes
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Latest market update
Issuance side

HSBC, Hang Seng Bank, Bank of China(HK) and Citi Bank
launched NFC mobile payment services in 2013

Octopus launched “Octopus SIM” (a stored value card
resided on SIM card) and “Octopus Online Payment”
services using NFC mobile phones
Acceptance side

Contactless card readers, supporting multiple card schemes
(e.g. Visa payWave, MasterCard payPass) are being
installed in merchant shops
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Infrastructure development
E-cheque clearing platform
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Paper cheque
Basic features and benefits

As good as cash – Dishonoured cheques of over HK$50,000 will attract
summary judgement from High Court in Hong Kong

Right of payers and payees are protected by the Bills of Exchange
Ordinance

Payment can be accompanied by related transactions documents

Not necessary for payees to disclose account information to payers
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Disadvantages of paper cheque

Paper based

Physical delivery and presentment

Not environmental-friendly

Resource intensive and costly for banks to process cheques (Hong Kong
banks need to spend HK$1.7 billion a year on processing cheque)
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Key features of e-cheque

Bill of exchange under the Bills of Exchange Ordinance

In electronic form using pdf format

Digitally signed by payer and certified by payer’s bank

Support HKD, USD and RMB denominated e-cheques
Payer’s Signature
Bank’s Signature
Serial Number
16-digit Unique Cheque ID
(YYYYMMDDnnnnnnnn)
Additional Payee’s Identifier
(Input by corporate payers only, optional)
Unconditional Payer’s Reference / Remarks
(Free text for payer, optional)
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Benefits of e-cheque

e-cheque retains all basic features and benefits of paper cheque and with
the following additional benefits:

remove the need for physical delivery and presentment as in the case of
conventional paper based cheque

carries enhanced security features

remove the costly and cumbersome manual processing of cheque
(especially valuable to those account holders who are residing outside
Hong Kong or Hong Kong residents on frequent travelling)
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Payment Services (4-party Model)
Issuance
Issuer
Acquirer
Consumer
Merchant
Business model: Payment services
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Payment Services (3-party Model)
Issuance
Consumer
Non-bank
payment
service provider
Merchant
Business model: Payment services, fund pool and
information pool
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To summarise: The HKMA is supporting the
development of retail payments in HK
Users
Market
solutions
Infrastructure
development
Standards and guidelines
Laws and regulations
HKMA
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Thank you!
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