Fintech is fast becoming a significant segment of Hong Kong’s world-leading financial industry
As one of the world’s leading financial centres, it’s no surprise that Hong Kong is investing heavily in the new frontier of fintech
It’s the last day of RISE, one of Asia’s biggest technology conferences, and the main hall of the Hong Kong Convention and Exhibition Centre (HKCEC) is still heaving with people. For the past four days, start-up entrepreneurs have stood beside their booths eagerly explaining their ideas to passers-by in the hopes of alluring customers and investors. Meanwhile, at the main stage hundreds of people have sat and listened intently as CEOs of multinational corporations, YouTube stars and even robots talked about almost every nuanced area of technology.
However, talking androids and celebrity star power aside, this year’s RISE conference featured one field in particular, “fintech”, which has caught the attention of everyone from big banks like HSBC and BNY Mellon to smaller start-ups like Circle and Bitfair.
Financial technology, or fintech as it is commonly known, is a growing segment of the financial industry comprising a wide spectrum of innovative, “disruptive” technologies ranging from digital payment platforms and cryptocurrencies such as Bitcoin, to big data and artificial intelligence.
As one of the world’s most influential financial centres, Hong Kong is experiencing a significant rise in its fintech sector. As well as acting as a marketplace for companies from across the globe, investment in Hong Kong-based fintech firms has more than doubled each year since 2015, according to management consultants Accenture. Last year, this figure stood at US$546 million – up from US$216 million in 2016 and US$108 million in 2015 – placing it well ahead of both Singapore and Australia.
“Hong Kong is at the heart of an exciting fintech boom, where Asian investment meets fintech companies from China, Europe and the US,” says Raymond Qu, CEO of Geoswift, a financial services company headquartered in Hong Kong that provides cross-border payment solutions for the e-commerce, travel and education sectors. “With its proximity to China and its position as the gateway to the mainland, Hong Kong has emerged as one of the world’s most exciting, well-connected fintech hubs.”
THE RISE OF TECHNOLOGY
The rapid growth of investment in Hong Kong fintech companies over the past few years mirrors the industry’s significant expansion and development in general. “Fintech started gaining traction a decade ago, and its evolution has recently taken on a new dimension,” says Qu.
Hong Kong’s status as a major global financial hub provides not only a market for new fintech innovations, but also an environment that’s conducive to investment. “Hong Kong’s regulators have been reviewing how they can help boost the development of fintech,” Qu adds. “To avoid missing out on the technology boom, Hong Kong Exchanges and Clearing [HKEX] and the Securities and Futures Commission [SFC] have welcomed large technology companies with multiple classes of shares.”
“Hong Kong has emerged as one of the world’s most exciting, well-connected fintech hubs”
One of Hong Kong’s key strengths for fintech – as with so many other industries – is its role as a gateway connecting China with the rest of the world. Bridging the gap between these economies presents an opportunity for companies looking to use innovative new technologies to disrupt traditional financial services.
“Hong Kong acts as a launching pad for fintechs eyeing regional opportunities in Asia, as a market for fintechs providing B2B services, and as a launch pad for mainland fintechs seeking international expansion,” says Charles d’Haussy, head of fintech at InvestHK, a branch of the Hong Kong government that overseas foreign direct investment.
But Hong Kong isn’t solely a stepping stone to larger things for companies looking to expand into or out of China, and in recent years a number of enterprises have developed new fintech solutions specifically with the Hong Kong market in mind.
Originally founded in Moscow, e-commerce platform Storiqa has since set up its head office in Hong Kong along with an additional office in Singapore and, is on course to launch a trial version of its service later this year, specifically for customers in the two Asian cities.
Storiqa, essentially an e-marketplace that allows customers to purchase goods using cryptocurrencies, was present at the recent HKCEC tech conference. “We had a strong schedule for meeting local partners, and attending RISE was an added bonus to understand and get a sense of the exciting pulse of Hong Kong’s fintech scene,” says Andrian Galkin, the company’s COO.
For Galkin, Hong Kong in particular offers the potential to be both a vibrant market in its own right and a hub for the wider Asia region. “Hong Kong brings together a pretty international audience – there are a lot of travellers who can easily spread cool ideas worldwide. We plan to launch the platform in Asia because we see the potential in the consumer market. It’s a good place to start, to learn and to move forward.”
Of course start-ups aren’t the only ones directing their efforts towards the local Hong Kong market. Last year HSBC launched its own app, PayMe, which allows users to make payments and transfer money via mobile devices. In June, the company also partnered with e-commerce platform HKTVmall to allow customers to use the app to purchase items from the online store. “Banks in Hong Kong have invested more in digital and mobile banking in recent years, while more start-ups have launched financial management solutions,” says d’Haussy.
That said, there’s still plenty of ground left to cover in Hong Kong, with online and mobile payments in particular still less ubiquitous than elsewhere in Asia-Pacific. Online payments in China, for example, already account for half of global transactions, says d’Haussy.
Meanwhile, in Singapore 61 per cent of people polled in the latest 2017 Visa Consumer Payment Attitudes survey said they believed the country could become cashless within the next seven years. Compare that with Hong Kong, where a recent survey conducted by the Hong Kong Productivity Council found that only 29 per cent of the city’s populace had ever paid for something using their smartphone, and it’s clear the city has a gap it needs to close.
However, there are signs that the city’s residents may be coming around to mobile payments. Last December, some 2,500 of the city’s approximately 40,000 taxi drivers signed up to allow mobile payments using Chinese platforms WeChat Pay and Alipay – a notable step for the city’s cash-preferring drivers. Soon after, Octopus – maker of the city’s widespread contactless stored-value cards – began implementing its own QR code system designed specifically for taxis and small merchants.
In addition to transportation, the Hong Kong Monetary Authority (HKMA) is expected to issue its first virtual bank licences later this year, which would open the door for banks that deliver their services primarily through the internet or electronic delivery channels.
This in turn could help drive the growth and potential ubiquity of mobile payments in Hong Kong for companies looking to offer the service. “It will take time for some of Geoswift’s services in mobile payments to gain traction in a market like Hong Kong, where retail consumers are happy using credit cards and cash,” says Qu. “The onus will be on virtual banks to convince people to use them.”
MADE IN HONG KONG
As well as attracting international fintech companies like Storiqa, home-grown innovations developed by local companies are also gaining traction. Hong Kong-based TNG FinTech Group was founded in 2013, providing electronic wallets (e-wallets) through which users can deposit and withdraw cash at specific locations. Currently the platform has more than a million users, is available at about 1,300 locations, and the total value of transactions conducted through its primary platform, TNG Wallet, reached HK$6.1 billion (US$777 million) last year.
Another company, Bitspark, was founded in 2014 and provides money transfer services for companies powered by blockchain technology – a decentralised database that is difficult to tamper with and forms the basis of cryptocurrencies. As of April, the company had 11 money transfer shops in Hong Kong, and plans to increase this figure tenfold by the end of the year.
The rise of home-grown companies has been aided by support schemes such as the Cyberport Incubation Programme, a two-year, HK$330,000 (US$42,000) grant designed to help foster the initial development of start-ups in the city (Bitspark was one of these).
Home-grown innovations developed by local companies are also gaining traction
Four of the city’s major universities – Hong Kong University of Science and Technology (HKUST), Chinese University of Hong Kong (CUHK), Hong Kong Polytechnic University (PolyU) and University of Hong Kong (HKU) – now also offer fintech programmes. Among these is Asia’s first Fintech Massive Open Online Course (MOOC), which HKU launched in November last year and has currently topped 20,000 registrations in 190 countries.
The Hong Kong government has also taken steps to develop talent in the city, notably with the launching of the Technology Talent Admission Scheme (TechTAS), which is designed to accelerate the admission of research and development talent from overseas and the Chinese mainland. Set to run on a pilot basis for three years, the scheme will allow for a maximum of 1,000 people in the first year.
There is still room for local talent to grow, of course. Storiqa’s team in Asia-Pacific now includes nearly 50 employees, though the actual development of the platform is being done entirely in Russia. “Blockchain talent is scarce and the development is better centralised in Moscow to ensure that development speed and integrity is adhered to,” says Galkin.
Qu agrees that, while Hong Kong has a robust financial system, there remain areas where the city needs to progress when it comes to developing fintech. “We need to pay close attention to the ‘tech’ part of fintech,” he says. “Depending on your perspective, Hong Kong’s capacity for technological innovation is either a challenge or an opportunity.
“Some of Hong Kong’s universities have strong science and technology faculties, but aren’t as skilled at developing research and innovations for commercial use. More may need to be done to drive technological innovation.”
For its part, the government plans to introduce further initiatives. The HKMA, for instance, announced in July its plans to launch an academy of finance, set up in collaboration with the Financial Services Development Council, the financial sector, tertiary institutions, professional training bodies and regulators. Among the academy’s stated goals would be the promotion of financial leadership development.
“In this competitive environment, Hong Kong’s government is working diligently to foster an ecosystem more conducive to fintech innovation,” says d’Haussy.
In September last year, the government allocated HK$2 billion (US$256 million) to launch the Innovation and Technology Venture Fund (ITVF) to encourage investment in local innovation and technology start-ups.
This has been further bolstered by the allocation of HK$10 billion (US$1.27 billion) for general information technology development and innovation, representing a significant portion of the government’s massive HK$92 billion (US$11.7 billion) budget surplus last year. On top of that, an additional HK$500 million (US$64 million) has been allocated to the development of financial services – including fintech – over the coming five years.
And at the end of October, Hong Kong’s fintech space will see its next major boost, when some 8,000-plus delegates are expected to descend on this year’s Hong Kong Fintech Week conference. Run by InvestHK and set to be the world’s first ever cross-border fintech conference, this year’s event is scheduled to take place in locations across both Hong Kong and Shenzhen for the first time.
While Hong Kong still has room to develop, InvestHK’s d’Haussy remains optimistic about the city’s future role as a hub for fintech. “Going forward, government bodies will continue to facilitate industrial development, while the private sector will expand and scale its business in Hong Kong organically thanks to the vibrant market here.”
“The government is working diligently to foster an ecosystem more conducive to fintech innovation”
THIS PAGE: Scenes from last year's Hong Kong Fintech Week conference;OPPOSITE PAGE: Hong Kong Fintech Week banners and technology demonstrations at RISE 2018