PwC Hong Kong FinTech Survey 2017

PwC Hong Kong FinTech Survey 2017


PwC Ltd (

Date: 7 April 2017 

Introduction: Disruption is not the only option

This report will argue that Hong Kong is set to differ significantly from some of the major FinTech hubs around the world. Many of these hubs (London, New York, Singapore….) boast companies that have positioned themselves as disruptors. They have a high risk appetite and a great deal of firepower behind them. Hong Kong – dominated to a greater extent than other financial centres by a small number of very large players – has not experienced this degree of disruption or been impacted by so many new business models.


But disruption is not the only route to success. Rather than the model described above, the vast majority (82%) of Hong Kong banks and other financial institutions aim to enter into some form of partnership with a FinTech business in the next three to five years (see chart below). This may turn out to be a more efficient model and a faster way to market. Institutions will be able to achieve their goals without major capital expenditure. The question is: will the solutions developed in this way be innovative enough?


Figure 1: Financial services organisations in Hong Kong are looking at more partnerships with FinTechcompanies.

What changes do you expect to see in your sources of innovation over the next 3-5 years?


This survey also demonstrates that Culture and Talent are two significant constraints on the growth of the FinTech sector in the territory. Trust and Security, meanwhile, are the main challenges that FinTech businesses can address in order to position Hong Kong’s financial services sector for success.


PwC’s 2nd annual Global Fintech Survey was carried out from 7 Nov to 21 Dec 2016. It generated over 1,300 responses from CEOs and Heads of Innovation/ IT/ Digital/ Technology from 71 countries. Respondents came from a range of industries, including banking, asset management, fund payments, insurance, reinsurance and FinTech.



A willingness to partner…


FinTech firms and the large institutions that dominate Hong Kong’s financial landscape are entering into partnerships with their eyes wide open. They appreciate the risks, but also see significant opportunities for both parties in Hong Kong and the wider region. Given Hong Kong’s highly credible regulatory environment, FinTech solutions can be exported from and imported into the territory. Leveraging its unique position – different from China but still part of it – Hong Kong can attain regional leadership in areas such as Blockchain, RegTech and security.


Hong Kong financial institutions score relatively low in terms of placing disruption at the heart of strategy. But they are keen to go down the path of partnership with FinTechs. Perhaps this is preferable to the drama of disruption: big institutions can import culture change through partnership, while the start-ups gain penetration at a customer acquisition cost they would struggle to achieve alone.


Figure 2: Financial institutions in Hong Kong have not embraced disruption to the same extent as other markets.

“My organisation has put disruption at the heart of its strategy”






“Traditional financial institutions will be the most
‘disrupted’, so can they react to become disruptors instead?”

 – Hong Kong-based law firm respondent


The willingness to form partnerships is a pragmatic response: a way to get things done when you don’t have all the capabilities in-house. Through these partnerships, FinTechs will transform the financial services sector, but they will not steal the whole show. Some will eventually take over parts of the value chain; others will be subsumed.



Of the financial services executives surveyed in Hong Kong, 77% see start-ups as the greatest sources of disruption in the next five years. The danger arising from this is that incumbents develop a “them and us” mind-set, rather than pragmatically identifying more avenues for partnership. There is no reason to assume that such partnerships would be a zero-sum game – they should be able to create greater value for all stakeholders.


Figure 3: Financial services executives surveyed in Hong Kong identify start-ups as the most disruptive entityin the near future.

Which entities are likely to be the most disruptive in the next 5 years?





…but some reluctance to invest


While investment levels in FinTech and IT projects in Hong Kong are significantly lower than in China, and somewhat lower than the global average, the degree of interest in FinTech solutions is unmistakeable. Investment plans in Robotic Process Automation, for example, are much firmer in Hong Kong than the global average. And while intentions around Blockchain are rather mixed, Hong Kong respondents are particularly focused on its potential for Digital Identity Management.


Every territory is left trailing by China’s level of FinTech investment. But given Hong Kong’s proximity to China and the intensity of FinTech activity in the city, the gap is nevertheless striking. 


This subdued level of investment in FinTech and IT may be partly explained by the high level of sophistication and maturity of Hong Kong’s existing systems and connectivity. 


But, for an international financial centre, Hong Kong is lagging when it should probably be ahead. The city’s institutions are open to partnerships, which is to be welcomed. The concern is that – while this approach is savvy and sustainable – the pace is just not nimble enough.


Figure 4: Financial Institutions in Hong Kong are not investing in FinTech asmuch as their Chinese counterparts. 

What percentage of your annual turnover do you allocate to FinTech matters (investments into FinTech, IT projects, dedicated resources)?





Culture and talent


China has nurtured most of the giants of FinTech. While much of this can be explained by unencumbered, asset-light newcomers being able to leapfrog a relatively immature traditional banking sector, it has sparked debate in Hong Kong. Many have asked what is missing in the city’s financial services sector: is it an issue that regulators need to solve or is it a more risk-averse organisational culture that is holding back adoption of FinTech?


Regulatory uncertainty will also have a dampening effect on a disruptive, innovation-focussed culture. Some of this will spring from domestic policy issues. For example, a relatively complex regulatory regime in Hong Kong makes it harder to determine which regulations apply to FinTech.


Some broader forces will be felt globally: for example, it appears that much banking regulation could be watered down in the US, though the pace of change is uncertain. Meanwhile, there are concerns that regulation could become more burdensome in Europe.


Figure 5: Financial services executives identify regulatory uncertainty asthe top challenge.

When working with FinTech companies, what challenges do you face?










Inability to recruit and retain people with the right skillset is another barrier to creating an innovative culture. 87% of Hong Kong executives surveyed said they find it “moderately difficult” or “very difficult” to hire and retain people with the right skillset to innovate.


Figure 6: Financial Services Executives in Hong Kong are finding it harder to recruit and retain talent.

 Do you have trouble hiring and retaining people with the right skillset to innovate?






The recently launched FinTech Career Accelerator Scheme is a welcome development in this regard. Jointly launched by the Hong Kong Monetary Authority and the Hong Kong Applied Science and Technology Research Institute (ASTRI), the scheme will offer 100 six or twelve-month internships across thirteen participating banks. Further such programmes will be required in the medium term – hopefully with some element of international exchange.


Trust and security


Information security and threats to privacy rank as the biggest FinTech-related concerns among respondents in the financial services sector. The survey shows that these concerns are particularly keenly felt in Hong Kong. There are clearly opportunities for some FinTech players to engage with and allay these concerns. This could be a model for Hong Kong to build on and export regionally and globally.


As well as the price competition that FinTech can introduce into the market place, the other leading concern for Hong Kong firms is that FinTech adoption or partnerships could lay them open to legal and compliance risks.


Figure 7: Financial services executives in Hong Kong consider IT security /privacy as a FinTech threat more strongly than other markets.

What are the threats related to FinTech within your industry? (Percentage of respondents saying IT security / privacy threat)





Other recent PwC research shows that trust issues are front and centre for Hong Kong CEOs. In our 20th annual CEO Survey1 released in January 2017, close to 70% of respondents in Hong Kong – the majority from the financial services sector – agree that it is harder for businesses to gain and keep trust. They see the main threats as coming from data privacy and cyber security breaches.


A major issue for financial institutions is that – when faced with mounting compliance requirements – they feel their only option is to tie up an increasingly large number of their people. They don’t have the capabilities to develop in-house solutions, and when they turn to external providers they are unsure what compliance risk they might be incurring. Many of these compliance challenges can only really be solved at an industry level. But sector-wide utility solutions would need regulators’ full support and consensus among participants. So regulators could have a vital role to play in ensuring that solutions are both delivered and are robust enough for the task.


Figure 8: Hong Kong executives rate IT security as a challenge when working with FinTechs.
When working with FinTech companies, what challenges do you face?




IT security is central to FinTech’s prospects

Information security is a threat to the development of the whole FinTech sector. While we have yet to see a major security breach involving a FinTech service provider in Hong Kong, such events are well-publicised. If the perception grows that FinTech leads to hard-to-quantify risks and vaguely defined opportunities, its development in Hong Kong will be hampered.

FinTech businesses need to address security and trust issues so that the sector can flourish. There is a risk they will be perceived as the weakest link by traditional institutions. But if they can address this confidence deficit, they can quickly become an indispensable part of the solution – in Hong Kong and in the wider region. After all, most FinTechs have grown up in an environment full of security threats, while banks have been retro-fitting defences to legacy systems. 

IT security is therefore central to FinTech’s prospects. But addressing misconceptions about where risk lies will also be critical for its wider adoption. 62% of Hong Kong and Macau-based respondents to PwC’s Global Economic Crime Survey2 2016 believe that any cyber security incident would most likely originate from an external source. However, our Global State of Information Security3 survey from the same year notes that 50% of incidents reported originated from insider-related events involving current and former employees.

Just as with the early days of online payments, the real security threat may not be perceived. The greatest suspicion may be directed towards what is actually the most robust part of the process, simply because it is also the least familiar. As FinTech develops it will need to spawn solutions and services that address incumbents’ anxieties.


Opportunities for Hong Kong



A testing ground for automated solutions

Hong Kong scores highly in terms of interest in automated solutions, with 47% planning to invest in Robotic Process Automation (RPA). Concerns about the weight of the regulatory and compliance burden will certainly create opportunities for incumbents and incomers through the use of RPA and RegTech, as well as AI and Big Data, to deliver solutions that can greatly reduce the cost of compliance.


Hong Kong as a security hub

Hong Kong is a widely trusted environment and is used to working with many other jurisdictions. There is a clear opportunity for the territory to become a security hub: Hong Kong can set the standards that the region could follow. Currently there are a range of firms making progress in areas such as Blockchain. But they are mostly adopting existing product solutions, rather than leading the way.


A natural hub for payments

 Hong Kong is a major centre for offshore RMB.With China’s digital payments accounting for almost half of global volume, Hong Kong should further leverage its position as a payments hub for China’s mega-FinTechs.



Figure 9: Interest in automated solutions is notably higher in Hong Kong thanglobally.

What are the most relevant technologies for your business that you plan to invest in within the next 12 months? (percentage saying Robotic Process Automation)



Blockchain – a way to bridge the trust gap?

Figure 10: Financial services executives expect a jump in Blockchaintechnology uptake by 2018.
In what year do you expect your organisation to adopt Blockchain as part of a production system / process?




Uncertainty about Blockchain is matched by a strong desire not to miss out on this wave of innovation. 89% of respondents expect to go live with some use of Blockchain by 2018. This is less contradictory than it might once have seemed: the ‘early adopter’ stage is getting ever briefer. Respondents may well expect generic ‘Blockchain as a service’ solutions to be in place in a relatively short time.




“Peer-to -peer lending and crowd funding for the “underserved” and SME segment is already happening. The hurdle lies in the integrity of/trust in the scheme and framework. Blockchain has the potential to address this.”


– Hong Kong-based banking respondent



Blockchain and Digital Identity

Hong Kong closely follows the global picture in anticipating Blockchain’s application in payments and settlements. However, it gives the technology more prominence in the field of Digital Identity Management.


Hong Kong has an opportunity to lead the debate on digital ID – there is no clear leader in this field in Asia. The awareness and acceptance of digital ID needs to be promoted among consumers and businesses.


Incumbents need to address cybersecurity and data access issues. They need to offer a sufficiently reassuring customer experience that creates trust so that customers are comfortable about sharing their data. Once they have achieved this they can address cultural issues. One of the biggest challenges for incumbents is to develop an innovative culture: change management is essential.




Hong Kong and trade finance


Trade finance is in Hong Kong’s DNA. It is therefore slightly surprising that this area of potential Blockchain application scores no higher than the global average. One of the most high profile uses of


Blockchain has been in digital letters of credit. Hong Kong banks have been slow to join the various global consortia working on such solutions.



Figure 11: Financial services executives in Hong Kong expect to use

Blockchain technology for funds transfer, payment infrastructure and digital ID management.

What business uses do you see for Blockchain technology?






Given the clear dominance of a few very large institutions, disruption doesn’t loom as a threat in Hong Kong the same way that it does in other centres. These incumbents will partner with and learn from start-ups. Hong Kong’s financial institutions have taken a characteristically pragmatic approach to the challenges of FinTech. Sceptical that they can develop adequate solutions in-house, and unconvinced that disruption is necessary, they see partnerships with FinTechs as the way forward.

However, an excess of caution could mean missing out on opportunities – or that solutions are not sufficiently innovative. It is also apparent that some firms have entered into partnerships without planning for their talent needs or for how to expand regionally. These issues can hamper Hong Kong’s aim to be a leader in FinTech.

Culture and regulation could be constraints on FinTech’s development, but they can also be seen as guidelines that help FinTech firms maintain trust. Consumers are aware of repeated data breaches in banks and credit card companies, but they haven’t seen anything like that happen with one of the FinTech giants…yet.

Once trust has been earned, it is the biggest asset for FinTech firms in Hong Kong. But until then, it is their greatest vulnerability. In our global survey, “Increased price competition” was the biggest

FinTech-related threat, at 63%. For Hong Kong respondents, “Information security / privacy” topped the list, at 70%. Hong Kong’s FinTech players must get the security issue right.

Hong Kong’s regulatory environment and market size position it favourably for partnerships with innovative players. The strategy is not just to grow into China, but to seek opportunities across the region by importing and exporting FinTech services. The serious money will follow as this strategy proves successful.





Matthew Phillips

Henri Arslanian

Marin Ivezic

PwC China and Hong Kong

PwC FinTech & RegTech Lead, China/HK

PwC Partner

Financial Services Leader

and U.S. Liaison

+852 2289 1817

+852 2289 2303

+852 2289 2490



James Quinnild

Scott Likens

Florence Yip

PwC Asia Pacific Financial Services

PwC Emerging Technologies Leader

PwC Asia Pacific Financial Services Tax

Consulting Leader

+852 2289 6300


+852 2289 3422

+852 2289 1833





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