Powerful incumbents make fintech hard sell
The Hong Kong Monetary Authority has established a Fintech Supervisory Chatroom to provide “supervisory feedback to authorized institutions and technology firms”. These are trying to develop new finance technology applications that could change the way banking has been done for hundreds of years.
Already, online payments have overtaken cash in some markets and its share is growing increasingly briskly. On the Chinese mainland, for instance, non-cash payments surged at an average of more than 60 percent in each of the past couple of years. In addition to making payments for goods and services, customers in many economies can do a wide range of financial business from account management, buying insurance policies or making money transfer on their smartphones.
In Hong Kong, bank customers can do all that but only in the closed environment of their bank’s proprietary software. For goods and services payments they have to use cash or the Octopus card. There are few other options available to the Hong Kong consumers.
Despite the few complaints from consumers about the apparent inconvenience, many economists have warned that lagging behind other regional economies in fintech development could greatly undermine Hong Kong’s competitiveness as a financial center and business hub.
Their worries, widely reported by the local media, are apparently shared by the government, which is making serious efforts to promote fintech development in the financial sector. HKMA’s latest move is an attempt to clarify the regulatory gray areas, especially those involving privacy issues, which can confuse fintech developers.
The crux of fintech lies in the control of data about customers’ financial transactions. The issue in Hong Kong is further complicated by overdominance of two banking groups — HSBC and Bank of China (Hong Kong) — which dwarf all other banks by the number of customers and sheer size of their deposits.
As can be expected, these two players are loath to share customers’ data with their potential rivals, particularly technology companies that have become such a disruptive force in the banking systems of some other economies. An earlier proposal to establish a central credit system failed to make any progress because the large banks were reluctant to benefit smaller banks by sharing credit information while having nothing they needed in return.
The European Union has shown the way to break the banks’ monopoly on data. It introduced the Second Payment Services Directive requiring banks to open up the payments infrastructure and customer data they control to third parties, including technology companies, according to a BBC report. The move, widely acclaimed as a game changer, would let many businesses acquire information on spending patterns of individual customers. This information would be vital to their marketing plans. What’s more, it would enable technology startups to develop better and faster programs that offer a greater choice of banking services to customers than banks’ apps.
The success of Tencent’s WeChat, which grew from a mobile messaging service to a large business offering a myriad financial services, simply cannot be replicated in Hong Kong’s closed banking environment. The government will have to decide if it’s worth the effort to follow the EU example in breaking the banks’ monopoly on data to give consumers a choice of fintech services.
Ultimately, of course, the decision will have to be based on what consumers need or want. As it is, Hong Kong people have little to complain about over banking services, which they find to be efficient and convenient. Many people are finding it unnecessary to go to a bank as most services they need are now made available online.
For payments, most Hong Kong consumers are happy with just one card, Octopus, which has been around for more than 20 years.
For that reason, fintech is a hard sell in Hong Kong because banks don’t find the need to spend extra money in developing something their clients may not need. Technology startups would like to copy the success of Tencent. But they certainly need a change in the rules to enter the game.