Nurturing Winners: How Hong Kong Can Seize Its Fintech Potential

The perception that Hong Kong is behind other global financial and technology hubs on innovation both in fintech and technology, in general, is widespread. Within Asia, Hong Kong is seen as having lost ground to Shenzhen, home to Tencent and Huawei, and Singapore, which has arguably nurtured a much more vibrant technology start-up ecosystem. In 2019, the value of fintech investments in Singapore more than doubled year-on-year to US$861 million across 108 deals, while that in Hong Kong nearly doubled to US$374 million across 25 deals.

As for adoption, there is a lingering perception that Hongkongers are warier of fintech, based largely on the city’s slow take-up of mobile payments. But that is partially due to the early and mass adoption of the convenient Octopus pre-paid wallet, used by over 95 percent of the city’s population aged 15 to 64, as well as the lack of urgency among the city’s well-entrenched incumbent MNC FIs to offer their customers fintech products. The Covid-19 pandemic is tipped to be a game-changer for digital financial services globally as it accelerates fintech adoption and innovation. In Hong Kong, however, although 39 percent of the multinational financial institutions and fintechs we surveyed rated Covid-19 as a positive for overall adoption of fintech solutions, 43 percent saw it as a negative, and 18 percent said it would have no impact. Most significantly, half of all respondents said the pandemic was either a moderate or major negative for the development of fintech innovations or initiatives, presumably through its imposition of funding and budgetary constraints, and the detrimental effect on the availability of fintech talent in the city. The latter concern was highlighted by 48 percent of respondents.

Both the funding and talent issues can be addressed. The Hong Kong government is in the process of setting up a HK$22 billion (US$2.8 billion) private equity fund dubbed the Hong Kong Growth Portfolio. Akin to a sovereign wealth fund, the new fund will use 10 percent of the government’s Future Fund to invest in Hong Kong-specific projects aimed at boosting the city’s competitiveness in financial services, commerce, aviation, logistics and innovation. The fintech sector will no doubt be a major beneficiary.

The growth of China’s fintech giants in their domestic market has, until recently, been relatively unfettered by regulatory constraints. But the recent emergence of a more hands-on regulatory approach has created a degree of uncertainty about the extent to which they can continue expanding at home,[1] and provided greater urgency to their plans to grow internationally.

To be sure, China’s major fintech players, led by Ant Group and Tencent, have significant potential to export their fintech expertise overseas. And Hong Kong could serve as a vital staging ground in that effort.

In a statement to mark the release of the authoritative China Fintech Report 2020 by the research arm of Hong Kong’s leading English-language daily the South China Morning Post, the city’s financial secretary, Paul Chan Mo-po, noted: “As the mainland continues to expand its flourishing fintech sector, Hong Kong, as one of the world’s leading financial centres, the unique business gateway to the mainland and a rising regional fintech power, has much to offer and is poised to reap the rewards.”[2]

That theme was echoed by our own recent survey on the current state of Hong Kong’s fintech sector.[3] That survey found that while the city is perceived to be behind its global counterparts in fintech innovation and adoption, the local government could quickly close the gap by implementing ambitious initiatives to upgrade infrastructure, cultivate homegrown talent and offer greater funding to early-stage startups. This would enable Hong Kong to exploit its considerable natural advantages as a gateway to mainland China, serving not only as a preferred base for companies with regional ambitions in Greater China, but also as a launchpad for Chinese corporations into international markets.

The most compelling export markets for China’s major fintech players are developing nations, where the need for greater financial inclusion is most pressing. Access to those markets will be greatly facilitated by Beijing’s expansive Belt and Road Initiative (BRI).

The BRI’s remit is to promote cooperation among countries and regions in various areas, including facilitating unimpeded trade and financial integration. As the only major international financial centre in China with free flows of capital, Hong Kong has a specific role to play within the BRI in international project financing and offshore Renminbi (RMB) business.[4] As one of the region’s top asset management centres, Hong Kong can meet the demand for wealth management services generated by BRI projects. There is also considerable scope for Hong Kong to become the risk management centre for state-owned enterprises investing in major BRI projects and looking to expand their international footprints.[5]

Hong Kong-based firms involved in fintech identified local government and regulatory support as essential to realising the opportunities created by both the BRI as well as the Greater Bay Area (GBA) development plan, another important central government policy that promises to enhance Hong Kong’s fintech hub status. Additional schemes supporting fintech development within the GBA include the Stock Connect,[6] Wealth Management Connect[7] and soon-to-launch Insurance Connect[8], which enable Hong Kong, Macau and bay area residents to seamlessly purchase stocks, wealth management products and insurance products offered by institutions based in the separate jurisdictions of the GBA. Among the measures highlighted by our survey as essential in realising the opportunities created by all these policies are a cross-regional investment, outreach programmes and enhanced supervision.[9]

Disclaimer: This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this presentation and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals.