Multi-pronged strategy for fintech promotion
Hong Kong is aiming to become a fintech paradise:
Hong Kong is working on to become the leading fintech hub in Asia mainly through huge investments. It is estimated that these investments have more than doubled in 2017 to around US$550 million. Compare this with Singapore’s investments in fintech promotion of around US$230 million. What is interesting is Hong Kong aspires to be a connecting link between the giant technology companies of China and the rest of the world. InvestHK, Hong Kong’s investment promotion agency, says the environment is very conducive as the island nation has the necessary laws and financial regulations in place, which are just meant to promote fintechs. Among the preferential policies Hong Kong has initiated in 2018 is the creation of a HK$500 million fund to develop financial services over the next 5 years, including in fintechs.
Hong Kong, being an established international financial center, is a perfect breeding ground for fintechs. The financial services sector contributed 18% of its GDP and employs some 220,000 people or 6% of the workforce. In 2017, Deloitte ranked Hong Kong 5th among global fintech hubs, behind London, Singapore, New York and Silicon Valley. Analysts expect fintechs may overhaul many current jobs and business processes derived from complication of process and administration. This will mean better and cheaper services for financial services customers.
NEW FINTECH SANDBOXES
Understanding this importance, the Hong Kong Monetary Authority, the regulator for the autonomous territory, has created a plan to launch an enhanced fintech supervisory sandbox. This sandbox and the Securities and Futures Commission’s and the Insurance Authority’s new sandboxes, are all examples of how Hong Kong is becoming a safe place for fintechs to test products in a restricted environment without the usual regulatory consequence of pilot activities. Plans are now afoot to combine the 3 sandboxes thereby creating a single point of entry for cross-sector fintechs.
Among the efforts of HKMA is the move to set up a ‘fintech supervisory chat room’ to provide direct feedback. It is also planning to launch the Faster Payment System, which will support the use of mobile phone numbers and email addresses for payments in Hong Kong dollar and Renminbi.
5 KEY FOCUS AREAS
HK Financial Services Development Council, a high-level government advisory body to support the sustained development of the industry in the autonomous territory, has identified 5 areas where fintechs can focus. The aim is to attract investments and talent in these areas, eventually creating world-class firms and technologies in the context of an overall fintech strategy. These areas are:
Cybersecurity. The Hong Kong Association of Banks (HKAB) had developed a cybersecurity threat sharing platform, while HKMA has indicated that the platform can be extended to nonbank financial institutions. Building on this, it is proposed that a publicly-funded Cybersecurity Center should be established.
Payments and securities settlement. Leveraging Hong Kong’s extensive settlement platforms, the aim would be to secure and expand Hong Kong’s role as a settlement hub for China-international payments and securities transactions.
Digital ID and KYC utility. A fintech solution in the form of a sector-wide digital ID utility to address KYC requirements would be a priority.
WealthTech and InsurTech - data analytics, automation and AI. The intention is not just to enhance Hong Kong’s competitiveness in these areas but to impact more broadly on other aspects, such as insurance and banking, of Hong Kong’s financial center role.
RegTech. Hong Kong’s regulators, already respected, can further show their leadership by carving out an appropriate regulatory regime for FinTech, and by developing the application of technology to regulatory compliance.
HKMA TARGET AREAS
On the other hand, HKMA has clearly identified the following areas for special attention by technology companies:
• Full connectivity of digital retail payments through the Faster Payment System
• Upgrading of the existing Fintech
Supervisory Sandbox 1.0 to Version 2.0 • Facilitating the introduction of virtual banking in Hong Kong
• A new ‘Banking Made Easy’ initiative to reduce regulatory frictions and improve customer experience
• Development of an Open API framework • Stepping up cross-border cooperation in FinTech; and
• Enhancing research and talent development.
Hong Kong has seen a vast increase in incubator and accelerator programs - from 3 in 2010 to over 40 in 2015. There is this Cyberport, which provides dedicated co-working space, while notable innovation labs and accelerators include the Accenture Innovation Lab, the DBS Vault, and the SuperCharger Fintech Accelerator.
A NEW PLATFORM
The leading fintech ventures and financial institutions in Hong Kong had formed the Fintech Association of Hong Kong, which acts as a platform for stakeholders to share and connect. According to a spokesperson of the FinTech Association of Hong Kong, there are 2 developments that have made Hong Kong’s burgeoning fintech community more attractive to investors. He said banks went from being skeptical about fintechs, to realizing they can be beneficial to them. Subsequently, they moved from reviewing proofs of concept to actual implementation and adoption of fintech solutions, meaning startups now have a steadier revenue stream, making them more attractive. The other aspect, according to the spokesperson, is that the Hong Kong government and regulators have a more active agenda to push for innovation across sectors. This is clear from the 2018 budget proposals for the creation of the HK$500 million fund.
Consultancy firm PwC said in a report that the vast majority (82%) of Hong Kong banks and other financial institutions are looking to enter into some form of partnership with a fintech business in the next 3 to 5 years.
According to consultancy firm Accenture, Hong Kong fintechs have raised US$940 million since 2010, compared with US$387 million raised by Singapore-based startups
and US$714 million for those in Australia.
WELAB IS A LEADER
Notable among the major successful fintechs in Hong Kong is the online lending platform WeLab. It operates WeLend. It had raised US$220 million in combined equity and debt financing. Other notable players include CompareAsiaGroup, the region’s leading financial comparison startup, TNG Fintech Group, the operator of Hong Kong’s top e-wallet TNG Wallet, and Quantifeed, a B2B automated investment platform.
No doubt, the fintech scenario in Hong
Kong is drawing attention. With more than 130 startups, 3 accelerators and over 200 events associated with the fintech space, there are now several innovation labs, co-working spaces, accelerator programs run by both local and multinational financial and professional services firms are acting as platforms to propel the growth of fintechs. A study by KPMG has noted that 2018 will be the year where fintechs will go mainstream in Hong Kong and this trend is likely to drive the industry towards making a step change in the adoption of fintechs in the next 12 months.