DIG­I­TAL DOL­LARS

Fintech is fast be­com­ing a sig­nif­i­cant seg­ment of Hong Kong’s world-lead­ing fi­nan­cial in­dus­try

Business Traveller (Asia-Pacific) - - CONTENTS - WORDS CRAIG BRIGHT

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.

FI­NAN­CIAL FU­TURE

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

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