Hong Kong is one of the few places in the world that attracts fintech companies from both East and West. The city’s longstanding embrace of business and talent, reflected in it being named the world’s freest economy for the 25th consecutive year in January, is given greater potency by the fact that Hong Kong is the world’s third largest and Asia’s biggest financial centre. It is also second in the world for insurance and number one in Asia for asset management.
For centuries Hong Kong has been a gateway to mainland China, but right now its location means that it is on the doorstep – the entry point – to the global standout in fintech development. And its Mainland links are set to grow stronger in coming years in tandem with the economic importance of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) – that stretch of land around the Pearl River Delta that accounts for about 12% of China’s gross domestic product. The GBA includes 11 cities, including Shenzhen and Hong Kong, has a population of about 70 million people – a huge market and a huge resource.
The blueprint for China’s ‘Greater Bay Area’ strategy is to transform the 11 cities into the one of the world’s largest innovation and development powerhouses. The Central Chinese government announced the ‘Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area’ in February 2019, which placed emphasis on developing financial products and services within the GBA. Launching techfin pilot projects and boosting the development of fintech carriers are listed among the priorities.
Hong Kong’s accumulation of market intelligence, regulatory insights, and technical knowhow from both East and West make the city a cradle for truly global fintech products that can be tailored to any market and applied anywhere in the world. Hong Kong is now home to 550 fintech companies of which 52% have founders from overseas, with the remainder being entrepreneurs from Hong Kong and mainland China. According to Accenture, Hong Kong fintech companies have raised over US$1.1 billion during 2014 to 2018.
In Hong Kong there are 160 licensed banks and more than 160 authorised insurers. There’s recognition that digital payments, along with other aspects of fintech, provide a crucial building block for innovation and inter-connectivity driven by big data. The city also provides companies from overseas a combination of location, infrastructure, financial hub, legal system and local talent that simply cannot be matched elsewhere. And to help bring all that together, it offers genuine on-the-ground support through Invest Hong Kong (InvestHK).
Upcoming Opportunities in Hong Kong
- HKMA: New virtual banking licenses
- The Hong Kong Monetary Authority (HKMA) has recently announced the award of eight virtual banking licences to Livi VB Limited, SC Digital Solutions Limited, ZhongAn Virtual Finance Limited, Welab Digital Limited, Ant SME Services (Hong Kong) Limited, Infinium Limited, Insight Fintech HK Limited and Ping An OneConnect Company Limited. The virtual banks are required to only have one physical office in Hong Kong and will otherwise operate online only. They are expected to offer mainly retail services, thereby accelerating the move to electronic payments. Virtual banks will not only help drive fintech and innovation, but also bring about brand-new customer experiences and further promote financial inclusion in Hong Kong.
- Banking Open APIs
- The HKMA published the Open API Framework in July last year. The first phase was launched in January this year as scheduled. Twenty retail banks launched over 500 Open APIs, covering information on deposits, loans, insurance, investments and other banking products and services, to address various financial needs of customers.
- Hong Kong Stock Exchange (HKEX) teamed up with Digital Asset to build a blockchain platform for post-trade allocation and processing of northbound trading. HKEX has been testing a prototype system for Stock Connect using Digital Asset's platform and smart contract modelling language in an effort to accelerate the post-trade process and reduce settlement risk. Stock Connect is a collaboration between HKEX and the Shanghai and Shenzhen stock exchanges, which lets international and mainland Chinese investors trade in each other's markets through their home exchanges' platforms.
- HKMA had launched its new blockchain-based banking trade finance platform at the end of last year. The platform, ‘eTradeConnect’, combines the services of 12 major domestic banks including HSBC and Standard Chartered Bank to enhance cross border trade, and will link up with another blockchain platform called ‘we.trade’, to allow better trading among a network of nine banks across 14 European countries including Deutsche Bank, Rabobank, and UBS.
- HKMA and the Monetary Authority of Singapore (MAS) agreed to collaborate on developing the Global Trade Connectivity Network (GTCN), a cross-border financial infrastructure platform based on distributed ledger technology (DLT).
- Hong Kong Association of Banks set up a working committee following the HKMA’s establishment of the KYC Utilities as a shared platform to assess creditworthiness and risk management with a view to facilitating account opening. The HKAB also appointed an independent consultancy firm to conduct a feasibility study. These developments are currently at an initial stage.
- Last September, HKMA had unveiled four initiatives to facilitate the wider adoption of regtech focusing on anti-money laundering and counter-terrorist financing surveillance technology, prudential risk management and compliance, machine-readable regulations, and potential application of supervisory technology (suptech) for regulators to supervise financial institutions. Banks or tech firms with regtech projects and ideas are welcome to join the HKMA’s FinTech Supervisory Sandbox to experiment, develop and test-run.
- In May 2018, the Alliance for Financial Stability with Information Technology (AFS-IT) was established in Hong Kong. The AFS-IT includes top-level representation across the banking, financial, technology and regulatory sectors, as well as government officials from mainland China, Hong Kong, Macau, the Philippines, Thailand, Cambodia, Myanmar, Vietnam, Brunei and Laos, with a key focus being fostering innovation in regtech.
- Insurtech is a cornerstone of Hong Kong’s fintech sector and a priority of the Insurance Authority. In September 2017, it launched the Insurtech Sandbox to facilitate a pilot run of innovative insurtech applications by authorised insurers. At the same time, it launched Fast Track to expedite applications for new authorisation to carry on insurance business in or from Hong Kong using solely digital distribution channels. In December, the IA authorised its first virtual insurer.
Hong Kong Fintech Week
Organised by Invest Hong Kong, the 2019 Hong Kong Fintech Week from 4 – 8 November is now open for pre-registration. Dubbed the world’s first cross-border fintech event involving both Hong Kong and mainland China, the annual event in 2019 will attract over 10,000 attendees from over 50 economies from Hong Kong, mainland China, Asia and key fintech hubs in the world, 70% of whom were senior executives and investors. Apart from quality programmes with industry movers and shakers, the event also features a fast track program for companies to meet with the government, regulators, investors, institutions and innovation labs that showcase the latest fintech innovations, and over 4,000 business matching meet-ups facilitated by the event.
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Date: 3 June 2019