Multi-pronged strat­egy for fin­tech pro­mo­tion

Hong Kong is aim­ing to be­come a fin­tech par­adise:

Banking Frontiers - - Country Report - mo­han@bank­ingfron­tiers.com

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.

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