FACT SHEET: HONG KONG FINTECH LANDSCAPE
3 May 2022
A Diverse, Resilient, and Dynamic International Fintech Hub
Hong Kong is an international FinTech hub characterised by a diverse, resilient, and dynamic landscape. Although a relatively small city, it punches above its weight as one of the most productive markets for FinTech start-ups to rapidly scale-up. Throughout the COVID-19 pandemic, the Hong Kong FinTech sector bucked the global trend as companies continued to grow, raise capital and hire.
- Home to over 600 FinTech companies and over 3,700 start-ups, Hong Kong is one of the top cities globally for start-ups to rapidly scale-up. It is home to over 10 unicorn companies (start-ups valued over US$1bn). Examples of Hong Kong’s FinTech unicorns include ZA International, which was granted a HK virtual bank license in March 2019 via its subsidiary ZA Bank Limited, WeLab, an online financial company, AirWallex, a cross-border payment service provider and more.
- Hong Kong has one of the highest consumer FinTech adoption rates (67%) in the world, ranking above markets including France, USA and Japan. It also has a high B2B adoption rate of FinTech with 66% of FinTech companies focusing on the B2B market. The city also serves as a platform for mainland China, the world’s top consumer market for FinTech, with 51% of companies operating or plan to expand in the Greater Bay Area. According to HSBC, 37% of their international survey respondents sees Hong Kong as the preferred entry point into the GBA.
- 2021 Annual Startup Survey conducted by InvestHK showed that Hong Kong's start-up scene remained vibrant, with the number of start-ups increasing by 68.5 per cent from 2017 to 3,755. This spans across different business sectors, such as financial technology.
- In 2021, Hong Kong ranked in the top ten of the world’s top technology innovation hubs outside Silicon Valley over the next four year. In 2022, the city ranks third after New York and London in the latest Global Financial Centres Index, which was produced by the China Development Institute and the London think tank Z/Yen Partners.
- The Hong Kong Stock Exchange has been the world’s top IPO market seven of the last 12 years and an increasingly popular choice for Asia’s FinTech companies thanks in part to highly attractive listing rules designed for tech companies. In 2021, Hong Kong Exchanges and Clearing Limited hosted 98 new listings during the year, in which a total of HK$329 billion was raised. Looking into 2022, HKEX remains focused on successfully leveraging its strategic China-anchored advantage to capture further growth opportunities in the region and beyond.
- In March 2022, HKEX welcomed the first Special Purpose Acquisition Company (SPAC) listing in Hong Kong. Unique to Hong Kong, the SPAC listing framework welcomes SPAC listing applications from experienced and reputable SPAC Promoters seeking good quality De-SPAC Targets, providing another attractive route to listing in Hong Kong whilst ensuring appropriate investor safeguards. As of March 17, HKEX had received ten SPAC listing applications, reflecting strong market interest and demand for this new listing route.
A Supportive Regime and Ecosystem Focusing on FinTech Development
- Stable, world-class regulatory regime with attractive sandboxes and initiatives to pioneer FinTech development in emerging areas. No exchange controls or restrictions on capital inflows and outflows make Hong Kong one of the freest markets for FinTech companies to grow and expand cross-boundary operations. Start-ups also benefit from a low and simple tax structure, as well as a variety of generous government support, funding, and subsidy schemes.
- In November 2021, the Secretary for Financial Services and the Treasury announced to establish and chair a Coordination Group on Implementation of FinTech Initiatives “CGFin,” aiming to strike a better balance between market development and regulation. This group will holistically review and supervise the development of FinTech in Hong Kong, covering the areas of Mainland and overseas cooperation, financial infrastructures, regulatory regimes, cybersecurity, promotion, talent development and other cross-sectoral FinTech coordination.
- Hong Kong’s regulators have been ramping up efforts to attract FinTech investments into the market, and financial services in Hong Kong are more open to FinTech adoption, resulting in 35% to 56% of banks consider FinTech as an opportunity, and 86% of the incumbent banks are progressively integrating FinTech applications across all types of financial services, according to a report by the Hong Kong Monetary Authority (HKMA).
- In June 2021, the Hong Kong Monetary Authority (HKMA) announced the “FinTech 2025” strategy to encourage the financial sector to adopt technology by 2025, and to promote the provision of fair and efficient financial services for the benefit of Hong Kong citizens and the economy. The focus areas include:
- All banks go FinTech by fully digitizing operations
- Future-proofing Hong Kong for Central Bank Digital Currencies (CBDCs) by increasing Hong Kong’s readiness in issuing CBDCs at both wholesale and retail levels
- Creating the next-generation data infrastructure by enhancing the city’s existing data infrastructure and building new ones
- Expanding the FinTech-savvy workforce by collaborating with various strategic partners to groom all-round FinTech talent
- Nurturing the ecosystem with funding and policies by setting up a new FinTech Cross-Agency Co-ordination Group and various industry key players to formulate supportive policies for the Hong Kong FinTech ecosystem
- In October 2021, HKMA released a technical whitepaper on retail central bank digital currency (CBDC), titled “e-HKD: A technical perspective” (the Whitepaper). This Whitepaper is the first among similar papers published by central banks to unveil a technical architecture that includes a ground breaking privacy preservation arrangement that allows transaction traceability in a privacy-amicable manner.
- Earlier in February 2021, the Hong Kong Monetary Authority (HKMA), together with the Bank of Thailand (BOT), the Central Bank of the United Arab Emirates (CBUAE) and the Digital Currency Institute of the People’s Bank of China (PBC DCI), announced the participation of the CBUAE and the PBC DCI in the second phase of Project Inthanon-LionRock. This project initiated by the HKMA and the BOT aims to study the application of central bank digital currency in cross-border payments. This joint effort is strongly supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong and has been renamed as the “Multiple Central Bank Digital Currency (m-CBDC) Bridge”. In September 2021, they published a report, titled “Inthanon-LionRock to mBridge: Building a multi CBDC platform for international payments”, to deliver the interim findings of the Multiple Central Bank Digital Currency Bridge (mBridge) project.
- Commercial Data Interchange (CDI), which is targeted to launch by 2022, has led to a number of banks approving loans totaling over HK$900 million to SMEs using various kinds of commercial data during the study and pilot launch stages of the project. The building of CDI is part of the HKMA’s FinTech 2025 strategy to improve Hong Kong’s data infrastructure, empower the industry, and encourage creativity for developing innovative financial products and solutions, in turn building up the overall appetite for FinTech solutions in Hong Kong.
GBA as a Gateway for FinTech companies to Prosper
- The GBA Wealth Management Connect Scheme facilitates cross-boundary wealth management within the GBA, an open and economically vibrant region with a population of over 86 million. The GDP of the GBA was around US$ 1.95 trillion in 2021, which was 20% higher than 2020. While promoting the organic growth of our local wealth management market, it will drive the development of the entire financial services value chain, encompassing product development, distribution, asset management and related professional and support services.
- The HKSAR government is also working with the regulatory authorities in the Mainland to explore enhancement measures for the Cross-boundary Wealth Management Connect Scheme, such as increasing quotas gradually, expanding the scope of eligible investment products, inviting more participating organisations and improving the distribution arrangement.
- In October 2021, HKMA and the People's Bank of China (PBoC) signed a Memorandum of Understanding (MoU) to develop a one‑stop platform in the form of a "network link‑up" to allow eligible financial institutions and technology firms to conduct pilot trials of cross‑boundary financial technology projects concurrently in Hong Kong and the Mainland. Beginning February 2022, the HKMA and the People’s Bank of China (PBoC) are ready to accept applications from financial institutions (FIs) and technology firms for conducting pilot trials of cross-boundary FinTech initiatives in the Greater Bay Area (GBA).
Strong Funding Landscape
Hong Kong has a rich and diverse funding landscape. This includes both government backed and private funding for smaller start-ups; private equity and venture funding for scale-ups, and one of the world’s top IPO markets.
- Government Funding – As of January 2021, the Hong Kong government provides 47 grants for enterprises and organizations in different sectors. The recently released 2022-23 budget plan also aligned with Hong Kong’s position fostering I&T and FinTech enhancement in the city. For I&T, the HKSAR will set up a $5 billion Strategic Tech Fund to invest in technology enterprises and projects of strategic value under the Future Fund and double subsidy under the Technology Start-up Support Scheme for Universities to $16 million.
- On 6 January 2021, the Financial Services and the Treasury Bureau (FSTB) announced the launch of the FinTech Proof-of-Concept Subsidy Scheme (PoC Scheme). The PoC Scheme aims to encourage traditional financial institutions to partner with FinTech companies to conduct PoC projects on innovative financial services products. As of November 2021, the PoC Scheme has approved a total of 93 projects. The government has further allocated a funding of $10 million to launch a new round of the scheme in 2022.
- On 2 July 2020, the government launched the FinTech Anti-epidemic Scheme for Talent Development (FAST) scheme, and specifically targeting 1,000 FinTech jobs. Successful applicants will receive HK$10,000 per month as a salary subsidy for a maximum of 12 months. The total funding involved may amount to HK$120 million. As of July 2021, the Anti-epidemic Fund received a total of 1,028 submissions.
- In November 2021, HKMA’s FinTech Supervisory Sandbox 3.0 was launched through the Public Sector Trial Scheme. The Innovation and Technology Bureau will provide a maximum of $1 million in funding to local technology firms for each eligible project supported by the HKMA.
- Private Funding – Hong Kong has the 2nd largest fund pool in Asia Pacific in Q1 2021, behind Mainland China. Between 2016 and 2020, the average fund size in Hong Kong’s private equity and venture capital sectors was US $ 862.95 million and US $126.83 million respectively, comparing to US $219.21 million and US $68.14 in Singapore. In 2022, the top five HK start-ups by venture funding alone raised over US $472 million.
- This is set to be further boosted by new fund structures, including new planned legislation on the establishment of a limited partnership regime which meets the operational needs of funds, to encourage more private equity funds in Hong Kong. In the 2020-21 Budget, the government also announced plans to provide tax concessions for carried interest issued by private equity funds.
- IPO - Funds raised through initial public offerings (IPO) in Hong Kong amounted to nearly $330 billion in 2021, making Hong Kong the fourth largest IPO centre in the world.
Emerging FinTech Innovation
- Virtual assets (VA) – As an international financial centre, Hong Kong has attracted a wealth of talent and a great many start-ups in the virtual asset sector. The Government and financial regulators have rolled out a host of measures in March 2022 to ensure the orderly development and operation of the sector and respond to challenges arising from investor protection or money laundering risks. These measures cover three areas, namely (1) establishing a licensing regime for the VA service providers (VASPs); (2) contemplating the regulation of payment-related “stablecoins”; and (3) providing traditional financial institutions (FIs) with guidelines on offering VA-related services to clients.
- The circular issued in January 2022 by the SFC and HKMA sets out regulatory guidelines for traditional financial intermediaries and banks to follow when they are (1) distributing VA-related products; (2) providing VA dealing services; and (3) providing VA advisory services to clients. The circular helps financial institutions handle the growing number of enquiries on VAs from investors and facilitates their provision of VA-related services under a sound regulatory system and in the best interests of their clients.
- Regtech - In June 2021, the HKMA successfully hosted its flagship Regtech event – “Unlocking the Power of Regtech”. The virtual event was attended by over 4,000 participants with strong interest in Regtech, bringing together senior representatives from the global Regtech ecosystem including financial institutions, regulators, Regtech providers, and other industry experts.
- In November 2021, the HKMA launched the first Anti-Money Laundering (AML) Regtech Lab (AMLab), in collaboration with Cyberport and supported by Deloitte, to further encourage the use of Regtech under the “FinTech 2025” strategy. AMLab will strengthen banks’ capabilities to protect customers from fraud and financial crime losses, reduce risk displacement across the banking sector and raise the overall effectiveness of the AML ecosystem.
- In January 2022, HKMA issued the fifth issue of the Regtech Adoption Practice Guide, providing implementation guidance to help banks apply RegTech solutions for cyber risk management. It offers advice on how banks can use these solutions to address the latest cyber risk emerging from container technology and remote working arrangements.
- Trade Finance – The trade finance platform, eTradeConnect, is a large-scale multi-bank blockchain project in Hong Kong by a consortium of twelve member banks. eTradeConnect aims to improve overall trade efficiency, reduce risks and fraud by digitising trade documents and automating trade finance processes.
- Faster Payments System – Faster Payment System (FPS) was launched in September 2018. FPS operates on a round-the-clock basis and connects banks and stored value facility (SVF) operators on the same platform. As of September 2021, FPS has averaged 740,000 transactions per day worth HK$5.2 billion, average daily transaction volumes have more than doubled from HK$2.4 billion in early 2020.
- Sandboxes – Hong Kong has three sandboxes for the banking, insurance and securities sectors to help promote the development of mainland FinTech companies in Hong Kong. As of end-February 2022, pilot trials of 238 FinTech initiatives had been allowed in the FSS. Separately, banks have collaborated with tech firms in 170 trial cases. Usage of the FSS as of February 2022:
|Technology involved||Number of pilot trials|
|Distributed ledger technologies||8|
|Application programming interface (API) services||15|
|Mobile application enhancements||19|
Diversity of FinTech Companies
A unique feature of Hong Kong is its highly diverse range of FinTech companies operating in sectors including virtual banking, insurance technology, asset management, robo-advisory, blockchain, digital trading, payments, and cybersecurity.
- FinTech Enterprise Solutions and CreditTech are the 2 fastest growing categories in 2021, followed by RegTech and InsurTech.
- The FinTech companies in 2021 are from a broad range of sectors including WealthTech (19%); payments and remittance (13%); FinTech enterprise solutions (12%); digital assets (10%); InsurTech (8%); blockchain application (7%); compliance & RegTech (6%).
- Digital Payments is expected to be the largest segment with a total transaction value of US$19,123m in 2022, while The Digital Investment segment is expected to show a revenue growth of 47.1% in 2023, according to Statista.
- FinTech companies benefit from being in close proximity to the world’s largest financial institutions across banking, insurance, asset management and payments. Over 70 of the largest 100 banks in the world have a presence in Hong Kong and over 29 multinational banks have their regional headquarters in the city.
- Virtual Banking - Since 2019, the HK Monetary Authority (HKMA) has issued 8 virtual banking licenses.
- Insurance - Since 2018, the HK Insurance Authority (HKIA) has issued virtual insurance to four
One of The Richest FinTech Ecosystems in Asia
Hong Kong has one of Asia’s richest ecosystem of public and private organisations to accelerate, invest and support FinTech companies. Some of the key organisations supporting FinTech companies include:
- Cyberport is a business park and ecosystem for digital companies, housing nearly 400 FinTech companies. Cyberport also has a private equity fund to invest in FinTech start-ups. In February 2022, global blockchain leader R3 established its “Innovation Lab” at Cyberport to help Hong Kong FinTechs seize CBDC opportunities.
- The Financial Services and the Treasury Bureau (“FSTB”) has commissioned Cyberport to launch the Financial Practitioners FinTech Training Programme 2022, with a view to deepening in-service financial practitioners’ understanding of FinTech. The training programme is expected to benefit up to 1,500 practitioners, and promote more application of FinTech in the industry.
- The Hong Kong Science and Technology Park Corporation (HKSTP), also accommodates some 80 companies engaging in the R&D (research and development) of various FinTech solutions, providing research and development infrastructure across the city. Value added services for FinTech companies include HKSTP’s Open API partnership with the HKMA. The FinTech Centre of HKSTP officially opened in January 2021 at the InnoCentre, which serves as a focal point for all stakeholders to co-create projects for the financial sector with advanced technologies.
- Innovation Labs – Many world-renowned innovation laboratories have settled in Hong Kong, including Standard Chartered’s eXellerator, DBS Startup Xchange, Intact Lab Hong Kong, HSBC’s ASTRI Research and Development Innovation Lab, AMTD FinTech Centre, HKEX Innovation Lab, Bank for International Settlements (BIS); IBM Innovation Center, Deloitte's Asiapacific Blockchain Lab, PwC’s Emerging Technology Lab, ‘Nordic Innovation House’, MIT Hong Kong Innovation Node, and the Tuspark owned by Tsinghua University-backed Tus-Holdings.
- Accelerators - Many financial institutions have set up accelerators to promote cooperation among regulators, customers, business partners and technology companies. This includes Accenture’s FinTech Innovation Lab, Helix, Loopnest Blockchain Acceleration Programme, Betatron, and Hype Asia. Other notable accelerators include the ‘DBS Accelerator’ operated by DBS and venture capital Nest.
InvestHK is the department of the Hong Kong Special Administrative Region Government responsible for attracting foreign direct investment. It has set up a dedicated FinTech team to attract the world's top innovative FinTech enterprises, start-up entrepreneurs, investors and other stakeholders to set up their businesses in Hong Kong or scale their business via Hong Kong into Mainland China, Asia and beyond.
Hong Kong FinTech Week celebrates global hub's scale-up opportunities for the FinTech industry in Hong Kong and across the Guangdong-Hong Kong-Macao Greater Bay Area. Hong Kong FinTech Week 2021 attracted over 20 000 attendees. The conference was host to over 300 speakers, more than 400 exhibitors, and 39 international delegations and representatives. Twentyseven satellite events and thousands of business meetings were arranged through the event and via the online platforms. It also drew more than four million online views from worldwide audiences from 87 economies to learn more about the city's fast-growing FinTech ecosystem. Hong Kong FinTech Week 2022 will be held from 31 Oct to 4 Nov. Please visit www.FinTechweek.hk to receive further updates.