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Fintech in Hong Kong: An overview.

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Hong Kong is a globally recognised fintech hub with a diverse and dynamic business landscape. Its strategic geographical location, robust regulatory framework, and advanced technological infrastructure has made it a hotbed for fintech startups and established financial institutions alike.

Home to over 3,900 startups, 800 fintech companies, and ten unicorn companies, Hong Kong claims a spot among the leading global cities for fostering swift startup growth. The prominent FinTech unicorns in Hong Kong include ZA International, which secured a HK virtual bank licence via its subsidiary ZA Bank Limited; WeLab, an online financial enterprise; and Airwallex, a cross-border payment service provider. This vibrant ecosystem has placed Hong Kong at the top of the 2023 Q4 Global Financial Centres Index (GFCI), securing second position in Asia and fourth globally.

The city’s embrace of digital transformation is evident in its high adoption rates. An impressive 74% of Hong Kongers report using at least two fintech services, with over 90% readily adopting digital payment solutions, according to the PolyU Asklora Fintech Adoption Index in April 2023.

The Hong Kong Stock Exchange (HKEX) serves as proof of the city’s financial strength, leading the world’s IPO market for seven out of the last 13 years. This status has further attracted Asia’s fintech companies, thanks to its enticing listing rules tailored for technology businesses. In 2022, Hong Kong remained one of the most prominent centres for IPO fundraising, hosting 90 new listings that collectively raised HKD 104.6 billion (USD 13.3 billion).

The regulatory framework in Hong Kong

Compliance obligations in Hong Kong’s balance between fostering innovation and ensuring financial stability. The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) have taken proactive steps to regulate various fintech segments, such as virtual assets, digital payment systems, and crowdfunding platforms. The introduction of the Faster Payment System (FPS) and the Common QR Code Standard has further facilitated virtual banking and interoperability.

To further encourage innovation while safeguarding consumers and financial stability, the HKMA has established the “Fintech Supervisory Sandbox.” Within this sandbox, fintech firms can test their products and services under controlled conditions, promoting experimentation while minimising risks. In parallel, the “Virtual Banks” initiative has been implemented, leading to the emergence of digital-only banks. This initiative enhances competition and offers customers a broader range of choices in the banking sector.

A pivotal moment emerged in June 2021 when the HKMA unveiled the ambitious “Fintech 2025” strategy. The initiative intends to drive technology adoption across the financial sector by 2025, promoting equitable and efficient financial services for Hong Kong’s economy and its residents. The strategy focuses on the following points:

  • Full-scale fintech integration: Initiating a comprehensive digital transformation across all banks to embed fintech into their operations
  • Championing Central Bank Digital Currencies (CBDCs): Enhancing Hong Kong’s CBDC readiness for both wholesale and retail applications, ensuring the city is prepared for future developments
  • Revolutionising data infrastructure: Enhancing Hong Kong’s existing data infrastructure while creating new ones for the next generation of data-driven innovation
  • Cultivating fintech expertise: Collaborating with strategic partners to nurture well-rounded fintech talent and cultivate a workforce attuned to the evolving landscape
  • Ecosystem nurturing: Establishing the fintech Cross-Agency Co-ordination Group and partnering with key industry players to construct policies that foster an enabling environment for the Hong Kong fintech ecosystem

Funding landscape in Hong Kong

Hong Kong has a mature and diverse funding ecosystem. It includes government and private support for smaller start-ups, private equity and venture funding for larger businesses, and one of the world’s top IPO markets.

Government-led support

As of the recent milestone of May 9, 2023, the Hong Kong government has proactively extended its support through an array of 45 grants aimed at nurturing enterprises and organisations across different sectors. The budget for 2023–24 was also aligned with national development plans and Hong Kong’s role in fostering fintech enhancement in the city.

Private sector investments

Private equity capital under management amounts to an impressive USD 208.3 billion as of 2023, firmly positioning Hong Kong as the second-largest player in the Asian landscape. The city was also ranked as the largest hedge fund hub in Asia in mid 2022. In the same year, the top five Hong Kong start-ups raised over US $472 million through venture funding alone.

IPOs

Hong Kong became the fourth-largest IPO centre in the world in 2022 after raising nearly HK$105 billion through initial public offerings. The city’s exchange became famous for its innovation and flexibility, introducing “virtual listing ceremonies” during the pandemic isolation restrictions and committing to going paperless in 2021. Hong Kong is especially popular with firms based in mainland China, a prime example being Alibaba’s IPO in November 2019, which was the world’s largest that year.

Fintech subsectors in Hong Kong

Payment solutions

Mobile payment platforms, digital wallets, and electronic payment systems have gained significant traction in Hong Kong. This shift towards digital transactions has been facilitated by various advancements. For instance, the HKMA introduced the Faster Payment System (FPS) in 2018, a groundbreaking initiative that enables real-time interbank transfers. This system has not only transformed traditional payment methods but has also streamlined the process of instant fund transfers among individuals and businesses.

As a result of these innovations, companies such as Octopus Cards Limited and AlipayHK have emerged as key players, reshaping the landscape of financial interactions in the region. These companies have successfully integrated cashless payments into the daily lives of residents, offering convenience and efficiency like never before. Consequently, cashless transactions have become an integral part of the day-to-day routines of Hong Kong residents.

Blockchain and cryptocurrencies

Hong Kong is home to numerous blockchain startups and cryptocurrency exchanges, which are driving innovation in areas like supply chain management, digital identity verification, and cross-border payments.

To maintain a secure and well-regulated environment, the Securities and Futures Commission (SFC) of Hong Kong has introduced a comprehensive regulatory framework for cryptocurrency exchanges. Under this framework, these exchanges are required to adhere to specific licensing provisions, a move that safeguards both consumers and the overall integrity of the financial system. This integrated approach positions Hong Kong as a global example of embracing technological advancements while ensuring responsible financial practices.

Insurtech

The insurance industry in Hong Kong is leveraging technology to enhance customer experience, streamline processes, and develop personalised insurance products. Startups like Bowtie and OneDegree have capitalised on this trend, offering digital insurance solutions tailored to the modern consumer.

These digital solutions not only simplify the insurance purchasing process but also provide real-time customer support, claims processing, and policy management through intuitive apps and online platforms. This technological leap has not only increased efficiency within the industry but has also made insurance more accessible and tailored to individual needs.

Recognising the significance of this technological transformation, Hong Kong’s Insurance Authority introduced the Fast Track program, allowing authorised insurers to pilot new insurtech initiatives for up to 12 months without the need for a full regulatory approval process.

Robo-advisory services

Robo-advisory platforms are revolutionising investment strategies in Hong Kong. These fintech companies utilise data analytics and algorithms to offer automated and personalised investment advice to users. Investors seeking cost-effective solutions with diversified portfolios can access these platforms, which cater to individual risk tolerances and financial goals. This automated approach reduces costs and democratises investment opportunities by making them accessible to a broader range of investors.

Crucially, the Hong Kong Securities and Futures Commission (SFC) has issued a regulatory framework governing the functioning of robo-advisory platforms. These regulatory operations oversee robo-advisory platforms, ensuring transparency, investor protection, and proper risk assessment.

Digital lending platforms

These platforms leverage technology to streamline loan application processes, assess creditworthiness using alternative data, and provide quicker access to funds for individuals and small businesses. Fintech companies like WeLend and TNG Wallet are leading the digital lending revolution in Hong Kong. WeLend offers quick and hassle-free personal loans through its online platform, while TNG Wallet provides a virtual account that enables users to borrow and spend money digitally.

In alignment with these advancements, the Hong Kong government has been actively supporting the development of digital lending platforms by promoting initiatives that encourage collaboration between banks and fintech startups, further enhancing the availability of credit for various segments of society.

Regtech (Regulatory technology)

With the evolving regulatory landscape, compliance has become a critical aspect of the financial industry. Regtech companies in Hong Kong are using technology to automate and optimise regulatory compliance processes, reducing the risk of non-compliance and enhancing efficiency for financial institutions.

In January 2022, HKMA released the fifth issue of the Regtech Adoption Practice Guide, offering implementation advice to assist banks in implementing regtech solutions for cyber risk management. It provides guidance on how banks can use these solutions to manage the latest cyber risks brought on by everything from remote working arrangements to container shipping logistics technology.

Key players in Hong Kong’s fintech ecosystem

Hong Kong’s fintech landscape is shaped by many innovative companies and startups, each contributing to the city’s transformation into a global fintech hub. Here are the key players, some already mentioned, that have played a pivotal role in driving fintech innovation in Hong Kong:

  • WeLend: Prominent in the digital lending sector, WeLend offers online personal loans with a streamlined application process and quick approval times. The company’s user-friendly platform has reshaped the lending experience, making it more accessible and convenient for individuals seeking loans.
  • TNG Wallet: TNG Wallet is a leading digital wallet platform that offers a range of financial services, including remittances, currency exchange, and digital payments. Its innovative approach to mobile payments has been embraced by individuals and businesses alike, reducing the reliance on traditional banking methods.
  • Silent Eight: As a regtech pioneer, Silent Eight employs AI-driven solutions to enhance anti-money laundering (AML) and counter-terrorist financing (CTF) efforts. The company’s technologies assist financial institutions in automating the process of identifying and mitigating financial crime risks.
  • Octopus Cards Limited: A household name in Hong Kong, Octopus Cards Limited pioneered contactless payments with its Octopus card. Initially used for public transport, the card has evolved into a versatile payment tool for various services, transforming the way people make everyday transactions.
  • AlipayHK: A joint venture between Ant Group and CK Hutchison Holdings, AlipayHK brought mobile payments to the forefront of Hong Kong’s financial landscape. It allows users to make payments, transfer money, and invest digitally, revolutionising the city’s payment ecosystem.
  • Bowtie: In the insurtech segment, Bowtie is noteworthy for offering digital insurance solutions. It focuses on providing transparency, affordability, and convenience in the insurance sector, catering to the tech-savvy generation.

Challenges and future prospects

Despite the positive indicators and clear successes, Hong Kong’s fintech ecosystem faces challenges that need careful management and planning to ensure sustained development.

A key challenge is competition from nearby financial centres, especially Singapore. Both cities have made substantial efforts to attract fintech companies, investors, and talent. Singapore’s appealing regulations and strategic location position it as a strong contender for fintech activities in the Asia-Pacific region. This competition underlines Hong Kong’s need to improve regulations, encourage innovation, and foster fintech growth.

Data privacy and cybersecurity are other crucial aspects that require improvement. The increasing reliance on digital financial services and the collection of vast amounts of customer data highlight the importance of strong data protection measures. Striking the right balance between innovation and data privacy is crucial for fostering consumer trust in fintech solutions. Cybersecurity breaches and data leaks can have far-reaching consequences, damaging both individual trust and the overall reputation of Hong Kong’s fintech sector.

Despite these challenges, the prospects for Hong Kong’s fintech sector remain promising. One significant driver is the ongoing collaboration between traditional financial institutions and fintech startups. These partnerships can leverage the strengths of both sides, combining the established infrastructure and customer base of traditional banks with the innovative technologies and agility of startups. This synergy will certainly lead to the development of even more new financial products and services that enhance financial inclusion, increase efficiency, and improve customer experience.

Moreover, the integration of advanced technologies such as AI, machine learning, and big data analytics will play a crucial role in shaping the future of fintech in Hong Kong. These technologies can power smarter decision-making, more accurate risk assessments, and personalised financial solutions.

Summary

Hong Kong’s evolution into a fintech powerhouse underscores its adaptability and readiness to embrace technological change. The city’s strategic location, robust regulatory framework, and collaborative spirit have nurtured a thriving fintech ecosystem encompassing payment solutions, blockchain, insurtech, and robo-advisory services. As Hong Kong continues to harness the potential of fintech, it is poised to redefine the future of finance, offering innovative solutions that cater to the ever-evolving needs of a digital economy.

How Acclime can help

Acclime provides assistance in navigating the dynamic fintech landscape in Hong Kong. Our on-site team in Hong Kong delivers a comprehensive range of services that encompass various aspects of the fintech ecosystem, from regulatory compliance to innovative solution implementation. Whether it is understanding the intricacies of fintech regulations, local business nuances, or ensuring compliance, Acclime is dedicated to supporting your endeavours in Hong Kong, mainland China, and throughout the Asia Pacific region. Our experts are committed to delivering tailored solutions to help your business stay compliant and competitive. Contact the Acclime team in Hong Kong to embark on your successful fintech venture.


About Acclime.

We are a premier provider of professional formation, accounting, tax, HR & advisory services in Hong Kong, focusing on providing high-quality outsourcing and consulting services to our international clients in Hong Kong and throughout the region.

Fintech in Hong Kong: An overview