Hong Kong is uniquely positioned where China meets the Western world –geographically, culturally and politically. And it’s where fintech is pushing the boundaries, as The Fintech Magazine’s Doug McKenzie discovered.
Hong Kong’s annual Fintech Week might have gone under the radar due to its proximity in timing and geography to the Singapore FinTech Festival – the world’s biggest. But, given recent events in China’s special administrative region (SAR), there was no chance of that.
While democracy protestors were on the streets in 2019, Hong Kong regulators were working with the first eight startups to be given freedom to launch with virtual banking licences – including Ant SME and a Tencent joint venture. Meanwhile, rumours were rife that Ant Financial – the most valuable fintech in the world – was planning an IPO on the Hong Kong stock exchange, its affiliate company, the giant Chinese etailing conglomerate Alibaba, having done likewise earlier in the year.
Hong Kong is a different beast to Singapore and, as a result, its week plays a very different role. Comprised of three parts (a formal conference, visits to Hong Kong’s numerous innovation labs and a day trip to meet fintechs in China’s own ‘Silicon Valley’ of Schenzen), it’s designed to highlight the territory’s unique position as a bridge between two worlds: East and West.
Thanks to its location, the event pulls in thousands of tech and financial entrepreneurs and industry experts from the world’s second most powerful economy, China, and thousands more fly into Hong Kong Airport from around the globe.
So, with only a week to get an understanding of the Hong Kong fintech scene, I knew I was in for a challenge. There are at least 600 fintechs and more than 100 innovation labs operating in the vertigo-inducing city. However, I was tipped off that the first port of call when getting to know the tech scene here is Cyberport.
The business park describes itself as a ‘digital’ community, which might sound impossible when its physical presence totals 119, 000 square metres of office space. However the community that is incubated inside its Bond-villain-style campus really strives to embody the digital innovation revolution. From vertical, soil-less farms to coin repositories that convert your cash into your digital wallet, Cyberport screams the future. I was there, of course, to see fintechs and I spoke with nearly two dozen of them – all of whom really stretched the imagination of what fintechs could do… take Next Billion, a company that can help the millions of corner shops around the world achieve an effective stock check and inventory supply, and Sakai, a startup that helps connect informal modes of transport, such as tuk tuks, tricycles and e-jeeps, to your digital route planner.
While there, I got the chance to interview Charles Ng, the executive director of InvestHK, which is the government arm behind Hong Kong FinTech Week and is driving foreign investment in the region. He gave me an idea of the appetite that Hong Kong now has when it comes to fintech. The Hong Kong Monetary Authority chief executive Eddie Yue had described the SAR’s regulators as being traditionally conservative in their approach, but after hearing from Ng about plans for fintech in the near future, there is clearly a transformative reappraisal afoot.
Ng also pointed to an important distinction between Hong Kong and its regional rivals – Hong Kong already has all the traditional institutions, including banks and insurance firms, in place and they’re ready to collaborate.
The Hong Kong FinTech Week Conference, would be a graduation of sorts for many of the fintechs I had met over the first two days and would be the culmination and celebration of the industry as a whole in Hong Kong.
In March, Hong Kong hosts another fintech-focussed event: Blockchain Week. The event will look at the range of applications that distributed ledger technology (DLT) can offer across industry, and throw a spotlight on issues such as digital renminbi; digital asset management; regulatory hurdles across various jurisdictions; the latest DLT solutions for payment networks and banking; and the social impact and sustainability of blockchain projects (see www.hkblockchainweek.net/).
This month, the subsidiaries of Hong Kong Interbank Clearing Ltd and the Institute of Digital Currency of the People’s Bank of China (PBoC) are due to start a proof-of-concept trial that aims to connect eTradeConnect, a blockchain-based trade finance platform funded by a consortium of 12 major banks in Hong Kong, and the PBoC Trade Finance Platform.
A myriad of financial services, all looking for a fintech to embrace, makes Hong Kong a great destination, says Charles Ng, Associate Director General at InvestHK.
THE FINTECH MAGAZINE: Can you tell us more about the fintech ecosystem in Hong Kong?
CHARLES NG: We have 600-plus fintech companies in Hong Kong. It’s a sector that has enjoyed amazing growth. We see that from the survey we conduct with all the co-working spaces – innovation and research labs and accelerator programmers were only three co-working spaces here when we started the startup journey in 2013; now we’ve more than 100. And we’ve seen seven unicorns emerge – one, WeLab, was recently successful in applying for a virtual banking licence.
More than 18 per cent of Hong Kong’s GDP is driven by financial services. They employ more than 230,000 professionals with many more in the sectors that support them – accounting firms, law firms, M&E firms, consulting firms, and so on. All of these help this ecosystem come together and grow.
TFM: What sets Hong Kong FinTech Week apart from other events?
CN: The recent fourth edition of Hong Kong FinTech Week attracted 200 speakers from more than 60 countries. An anticipated 10,000 participants connected with each other, engaged with each other. But for us, the numbers aren’t so important; it’s about quality, not quantity. The stakeholders that you meet at Hong Kong FinTech Week are senior executives from financial institutions, banks, insurance companies, asset management, private equity brokerage firms. They are also from organisations like telcos and, through our engagement with various associations, accounting and law firms that represent the various industries in Hong Kong, from manufacturing to logistics.
TFM: Why would fintechs choose Hong Kong over some of your neighbours as a base in Asia?
CN: There are a couple of reasons. The first thing these companies are looking for is business opportunity. And we have 160 licensed banks, eight startups with new virtual banking licences, and 162 licenced insurance companies. Then there are the asset management companies, security firms, funds of funds, sovereign funds, family offices, you name it, they are here in Hong Kong. So, we have a very big range of financial companies, which we anticipate will attract more. The big technology giants in mainland China are also expected to make a second listing in Hong Kong. So, with that level of activity and momentum, we believe there is a need for financial companies to embrace fintech solutions and services.
But that is only one part of it. Fintech is not just for financial services; it cuts across other sectors, such as telcos. And we have a lot of telcos in Hong Kong! With the adoption of 5G in Asia, there are many synergies between them and the financial service companies and fintechs.
TFM: How does the Hong Kong financial service ecosystem fit into the wider financial services ecosystem in Asia?
CN: We want a strong ecosystem, in Singapore, in Japan, Korea, India… we want all these countries around us, and in other hubs, to be flourishing, because that’s the only way there will be a good exchange of demand and supply.
The world is big enough for everybody; there’s no such thing as pure competitors. We’re collaborators in many things – our regulators have a collaboration with Switzerland and with Singapore – and we’d love to see more of it.
I would really urge any government who is interested in collaborating with us, to reach out… as we are.
Hong Kong’s Cyberport is a living lab where fintechs find all the help they need to push those digital envelopes, says Chairman Dr George Lam.
THE FINTECH MAGAZINE: How has Hong Kong’s role in financial services changed over the last decade?
GEORGE LAM: Hong Kong has been very lucky; we have always been a key international financial centre because of our British common law heritage, strong governance and high level of transparency. Our financial services are very well regulated, very stable, rock solid even, so that’s a good foundation for digital transformation. Over the past three years, in particular, Hong Kong has made huge progress. We have not been the earliest practitioners of fintech development, but we are running fast and on a very solid foundation. That’s why this international financial centre has not seen any disastrous cyber security attack.
Cyber security is a big focus for us, as is blockchain, artificial intelligence (AI), big data, deep tech, and fintech – we are very interested in all of them. The key driving force is innovation.
We also see a lot of seasoned bankers, fund managers and venture capitalists, putting more money in to the tech sector. In fact, these days, I think it’s very difficult to find an investor who has not invested in Hong Kong!
So, all this is how Hong Kong has managed to move so well from traditional financial services in to fintech.
TFM: How has Cyberport helped Hong Kong with this transition to fintech?
GL: Cyberport is probably the most global tech hub in Asia. We have established connections with mainland China – that’s a very important, 1.4 billion people market, and growing fast. We are also the international gateway for the Greater Bay Area, which is made up of the nine top cities in Guangdong, the top economic performance province in China, plus Hong Kong and Macau, two SARs. This nine-plus-two setup is the new Silicon Valley for the world. So, any fintech entrepreneurs, who want to become a unicorn, or have impact, this is the place to do it. You have a real-life lab here, hungry for innovation, improvement, efficiency, and also making financial services more available to the community.
If we do fintech well, we can make our innovative solutions available to surrounding countries and help a lot of underbanked and underinsured people gain access to financial services. All they need is a smartphone and they have the universe.
We have seen new champions emerge, such as virtual banks, virtual insurance companies, e-wallet companies, e-payment companies, robo trading, robo advisory companies, you name it, we have it. Hong Kong has a very strong regulatory background, making financial services rock solid, but we also need to change with the times. So, our fintech entrepreneurs are working hard, working smart – and we help them, by building an ecosystem. Because at Cyberport, not only are our startups working together, but we also bring in tech giants, top banks and insurance organisations, then we build strong relationships with our regulators – for instance the Central Bank, the Hong Kong Monetary Authority, the Hong Kong Insurance Authority, the Securities and Futures Commission, the stock exchange – making sure that our entrepreneurs are fully linked up with regulations. In turn, they can then become a good source of advocacy for law reform and for regulatory improvement. It should be a two-way street: entrepreneurs pushing the envelope and our regulatory organisations being very proactive, too.
TFM: We’ve recently seen a trade war between China and the US. How does that affect Hong Kong when it comes to the digital industries?
GL: Hong Kong is very well positioned in any such situation as the golden bridge between East and West – between China and the US, Japan, Korea, Australia, the Nordic countries and the EU. Not only are we the best positioned, geographically, but we are culturally and economically also very well linked.
Although Hong Kong is part of China, we have our own currency, our own legal system, and our own customs zone status. We are a free port, so we should be a good place for the best of the world to come and do something together.
David Leung heads up SC Ventures for Standard Chartered Bank in Great China and North Asia, responsible for fintech investment and the bank’s eXellerator labs. SCV’s mission is to ‘rewire the DNA of banking’. Here he explains how it goes about it…
SC Ventures is the catalyst and the platform for Standard Chartered Bank to experiment in new ways of working and with new business models, and to invest in fintechs.
It starts with our eXellerator. And, for me, what that embodies is engagement: engaging with people in the bank and our businesses, asking, ‘how can we solve problems in a new way? How can we engage in fintech and new ways of working? How can we put the customer at the heart of that problem-solving process?’.
Then we have the Innovation Investment Fund, which is $100million, dedicated to investing in fintechs, but with a very specific purpose. We’re not a VC, we are investing in what we view as the future capabilities for banking. So, for example, new core banking systems for running a bank, in 2020, 2030, and beyond. We invest in future capabilities. That manifests itself as us only investing in companies that we work with, using the bank’s own capital – it’s not a public fund.
The third thing we do is build new business models. We also do this for the future of the bank. We want to know how we can explore new ways to serve client needs in financial services that are outside the normal sense or strategy of the bank. Which means, for example, we can explore a non-banking SME platform in India, called SOLV. It gives us another option for our business models, which is a variation on serving, fundamentally, client needs in financial services – in this case, SMEs.
So these are the three pillars of our activity; the accelerator, the fund, and building business ventures.
SC Ventures is all over the world now. We have an outstanding location on the West Coast, where we’ve formed close relationships with all of the names you’d expect to see there. We’re in London, which is focussed on market infrastructure; there we have a lot of relationships with asset managers and the insurers. That, obviously, scopes into the European ecosystem.
But then we are also in Nairobi. There is a vibrant fintech ecosystem in Africa, which made the jump from no telco to mobile-only. If there’s a vibrant ecosystem there that is open-minded about the adoption of technology driven by mobile, surely we can be relevant there, too.
In Asia, we’ve been working very closely with our retail bank in Hong Kong. Singapore is the headquarters for SC Ventures, but then we’ve also opened in Shanghai recently to engage in that ecosystem, where the big question for fintechs is ‘do you think you’re really going to compete in China against big tech?’.
The purpose of SC Ventures is as a platform for innovation. So, can we be relevant in partnerships that combine financial services and non-financial services? Yes, we can. Can we bring fintechs out of China, to all of our other 60 markets? I think so, yes. Can we take fintechs from those 60 markets in to China? Subject to language, I think we can do that, too.