As a gateway to China and beyond, Hong Kong has all the ingredients necessary to be the global and regional fintech hub being an international financial centre recognised for having a free economy with a strong legacy of trade, and a large talent pool with an impressive work ethic. The Hong Kong Special Administrative Region (HKSAR) Government has pledged full support to the Fintech sector, and significant resources and efforts have been dedicated to facilitate the industry development by the Chief Executive in his latest Policy Address. Working in partnership with the private sector the fintech ecosystem in Hong Kong is increasingly vibrant.
Hong Kong is consistently ranked as one of the strongest startup hubs in the world. Hong Kong’s proximity to China and the flourishing Fintech of Asia makes the city an increasingly important hub and go-to destination for Fintech companies globally. Hong Kong is a fantastic launch-pad for China and the rest of Asia – from here you can have access to half the world’s population within a five-hour flight.
China – the fintech giant
Many people outside China are not fully aware of just how advanced fintech sector in the region is, and how advanced the offerings are compared to their Western counterparts. The People’s Bank of China has done trial runs of its prototype cryptocurrency, making it a step closer to becoming one of the first major central banks to issue digital money to be used for anything from buying a lunch to purchasing a car. B2C fintech in Greater China is already the global leader with companies such as Lufax and Tencent deploying innovative ways to deliver financial services to millions of customers. For example, Ant Financial’s money market fund Yu’e Bao is now the third-largest money market fund in the world, and Zhong An’s online insurance offering has more than 350 million customers.
Baidu, Alibaba and Tencent (BAT) are China’s leading internet and mobile platforms, the three companies have created an IT architecture primed for digital banking, and have successfully leveraged their social networks for financial services. The BAT are essentially operating as banks, arguably the world’s first true digital banks. In contrast, western banks pursue digital transformation projects that are dependent on a vendor community and remain vulnerable to disruption. Over the past three years, their extraordinary developments include becoming utility providers of infrastructure in transport, taxi hailing, logistics, deliveries, ticketing and many other services all integrated into a one-stop platform, enabled by payments and an increasing array of banking services.
Frost and Sullivan research states that the commercial world is moving towards platform-based solutions that integrate information, billing and payment into the transaction itself. As the BAT progress further into banking and financial services in 2017, traditional banks will also need to reconsider their approach to modernday customers. The BAT have established that wealth management services can be provided to mass public an affordable price, and successfully created market share by converting the unbanked population.
In China, the fintech revolution has already had cost implications for banks as deposits move onto these online finance platforms, revenue and distribution channels are gradually shifting away from the traditional models to online and mobile – and this will only continue to be the trend moving forward.
Top trends of the Hong Kong fintech sector
Hong Kong fintech market is prosperously driven by the private sector with the strong government support.
So far InvestHK has focused its fintech related efforts on:
Blockchain: Hong Kong has a strong telecommunications industry and has attracted some major cloud service companies from both the US and mainland China. Right in this time, supported by Deloitte, the Hong Kong Monetary Authority and five leading trade finance banks in the area are developing a distributed ledger technology proof of concept for trade finance. This is potentially ground-breaking, and shows real commitment of Hong Kong to use fintech for the benefit of the market and consumers.
Cyber Security: Advanced technology shall not break foundations of finance – security and trust. Cyber security helps Hong Kong grow its assets in fintech, while ensuring that the market stays safe.
Regulation Technology: InvestHK is engaging with the best and brightest RegTech practitioners and researchers from across the globe to make sure that we have in Hong Kong a fundamental and strong practice in regulation technology. Moreover, the University of Hong Kong happens to have one of the best researches in the world dedicated to technology regulation.
Banks are constantly looking for innovative and flexible solutions from startups to improve their services and geographical reach. And startups are looking for opportunities for closer collaboration with banks where they can utilise their resources and support with regulation. We see a rising number of collaborations between banks and accelerators, including SuperCharger (supported by Standard Chartered Bank & Fidelity International), Accenture Fintech Innovation Lab Asia-Pacific (collaboration between Accenture and a dozen leading financial institutions), DBS Accelerator and Commonwealth Bank’s Innovation Lab. All of these programs aim to nurture earlystage Fintech companies from around the world that are developing potentially gamechanging technologies for the financial services sector with a particular focus on the Asia-Pacific region.
Deputy Head at InvestHK
So… Hong Kong or Singapore?
Size of market
– Hong Kong has a much bigger Stock Exchange than Singapore with around 300 IPO’s per year (around one per day);
– There are over 600 brokerage firms in Hong Kong;
– There are over 2 trillion US Dollars assets under management in Hong Kong.
Connectivity to Mainland China
– Hong Kong and Shanghai as well as Shenzhen Stock Exchanges are connected;
– HK is largest offshore Renminbi Hub;
– Two thirds of Mainland companies take their first step outside the People’s Republic to Hong Kong.
– Free flow of information in Hong Kong is usuall quoted by business as one of the top reasons to set up in the area;
– Whilst there are some small tech funding schemes (e.g. help with intern staff costs, help with R&D funding etc) in Hong Kong the government is hands-off and does not directly invest in companies;
– Tax is transparent and low (but there are no special tax deals available).
To sum it up HK is very different from Singapore, and for fintech founders who want to engage with Mainland China, Hong Kong is a better place to be.