商學院故事

25.01.2019

A Platform for FinTech Success

“These financial institutions [more than 70 of the world’s top 100 banks and 13 of the world’s top 20 insurers in Hong Kong] provide a substantive and ready customer base for FinTech companies which seek to work with incumbents and provide innovative FinTech solutions.”
Paul CHAN, Financial Secretary of the Hong Kong SAR Government

Hong Kong’s Financial Secretary Paul CHAN brims with confidence about Hong Kong’s tech future. “There is vast potential for Hong Kong to become a premier FinTech hub, through leveraging our role as an international financial center, with a highly developed information and communication technology infrastructure, and ample finance and entrepreneurship talent,” he says.

The figures Chan can cite on the increasing scale of the collaboration between tech businesses and financial institutions, indicate that this potential is beginning to be realized.

“Venture capital investment in Hong Kong-based FinTech companies increased to US$546 million in 2017, compared to US$216 million in 2016,” he notes. Across the years 2014-2017, FinTech companies based in Hong Kong raised US$940 million, compared to US$627 million and US$325 million raised in Australia and Singapore respectively.

Embracing FinTech

There are also a number of specific developments Chan can point to in order to substantiate his optimism.

The advent of virtual banking promises a better customer experience and broader access to financial services. “More than 70 firms, including local and overseas technology and financial firms, have expressed interest in establishing virtual banks in Hong Kong,” he notes. By the end of August 2018, this had translated into some 30 formal applications to the Hong Kong Monetary Authority (HKMA).

In September 2018, the Faster Payment System (FPS) was launched. FPS enables the public to instantly transfer funds, in Hong Kong dollar or Renminbi, across banks and “Stored Value Facilities”, at any time and from anywhere, by simply using the payee’s mobile number or email address.

The recently launched eTradeConnect was developed by a consortium of 12 major banks in Hong Kong, and is the first large-scale multi-bank blockchain project in the city. “The active participation of banks shows their determination to solve age-old problems of the current paper-based trade finance system, such as inefficiency and proneness to human error and fraud; as well as their willingness to adopt new technology in this era of smart banking,” Chan says.

Open Application Programming Interface (API) allows financial institutions to open up their internal systems and data for programmatic access by third-party service providers, thereby improving customer experience of financial services. The HKMA published its Open API Framework in the summer of 2018.  The Framework adopts a risk-based principle and four-phased approach to implement various Open API functions to ensure smooth adoption and security.

“For the insurance industry, the application of InsurTech can be found in nearly all stages of the life cycle of insurance products, including product development, distribution, underwriting, claims and fraud prevention,” Chan says. Insurers, he adds, have been using technologies such as blockchain, artificial intelligence, data analytics, and cloud computing to enhance the customer experience and maintain their competitiveness.

Strengths to build on

Hong Kong’s position as a leading international financial center, and the soundness of its financial system, are recognized around the world, Chan says. “The Global Financial Centers Index published by the Z/Yen Group in September 2018 ranked Hong Kong as the third global center, behind only New York and London. Meanwhile, more than 70 of the world’s top 100 banks are operating in Hong Kong.”    

This strength extends across the entire financial services spectrum, with 13 of the world’s top 20 insurers authorized to conduct insurance business in a city which is also the leading asset management hub in Asia.

“These financial institutions provide a substantive and ready customer base for FinTech companies which seek to work with incumbents and provide innovative FinTech solutions,” Chan points out. 

In addition, the role Hong Kong plays as the link between Mainland China and the rest of the world makes it the leading business hub in the region, he believes. More specifically, the Closer Economic Partnership Arrangement (CEPA) has given Hong Kong unique access to the mainland market, as well as allowing it to contribute to the opening up of the Mainland to the global financial system.

And Hong Kong’s location, adjacent to Shenzhen and within the Greater Bay Area, means it is well-positioned to connect the companies in this FinTech powerhouse with the rest of the world, he says. “The HKMA signed a Memorandum of Understanding with the Office of Financial Development Service, the People’s Government of Shenzhen Municipality, in June 2017 to foster FinTech collaboration.”

Support and regulation

The government supports FinTech development with its five-pronged approach, he says.

“Our investment promotion agency, Invest Hong Kong, has set up a dedicated FinTech team to attract startup entrepreneurs, investors and R&D institutions to establish a presence in Hong Kong, and to organize signature FinTech events such as the very successful Hong Kong FinTech Week.”

The second area is facilitation. Organizations such as Cyberport have launched initiatives to support startups, including a dedicated FinTech space — Smart Space — and an incubation program. “To promote collaboration between financial institutions and startups, the HKMA and Cyberport launched the Haccelerator program,” Chan adds.

Third, the government’s Enterprise Support Scheme, the HK$2 billion Innovation and Technology Venture Fund and Cyberport’s Macro Fund, all provide sources of funding for novel projects, including those involving FinTech. 

On the regulatory front, Chan points out that while the government strives to support financial innovation, it also has to protect the interests of the investing public and ensure stability in the market. “On the regulatory front, the HKMA, the Securities and Futures Commission and the Insurance Authority have established dedicated FinTech liaison platforms and regulatory sandboxes to enhance communication and encourage the industry to innovate.”

The sandbox approach provides for live testing of new FinTech products in a controlled environment, and has helped reduce the lead time in launches.

In nurturing the next generation of FinTech talents, examples include the HKMA and Hong Kong Applied Science and Technology Research Institute’s FinTech Career Accelerator Scheme and the Cyberport University Partnership Program.

The Financial Secretary says he is also pleased to see the support local higher education institutions have been giving the development of FinTech. “For HKUST, I note your Business School has launched a series of new education courses and programs on FinTech and Data Analytics.”

“The higher education sector can collaborate with the industry as well as regulators to help nurture future FinTech talents for the city, and I do encourage them to do so.”