Hong Kong is at the forefront of the global wave of digital transformation and fintech disruption as the winds of change continue to sweep across the world. As a hub for innovation and cutting-edge technology, the city is redefining the future of finance and revolutionising how we do business.
While the value of fintech investments in Asia-Pacific has been significantly lower than in certain regions, the region’s large population and high fintech adoption rate have propelled it to surpass EMEA figures and become the world’s largest fintech market. Meanwhile, banks in Hong Kong are also embracing digital transformation and adopting cloud technology to increase efficiency, reduce costs, and improve agility, with 93% of the Asia Pacific banks surveyed expecting to operate in hybrid and multi-cloud environments this year.
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According to a report by KPMG, Hong Kong is ranked as the sixth most attractive tech hub in the region and ninth globally, with a projected market size of $300bn by 2025. While the Covid-19 pandemic has presented unprecedented challenges over recent years, fintechs are now more determined than ever to lead the way in building a digital-first society that is stronger and more resilient than before. The future of fintech is bright in the Asia-Pacific region, and Hong Kong is leading the way – let’s look at the contributing factors and how the city has positioned itself as one to watch.
Why Hong Kong’s fintech ecosystem is booming
The city has a strong foundation in finance, with a robust regulatory framework and a highly developed financial infrastructure. This has provided a solid base for fintech startups to build on, with many leveraging existing financial systems and networks to create innovative new products and services. The widespread adoption of digital technology and the increasing demand for digital financial services have created a favourable environment for fintech innovation to flourish, which has only been accelerated by the pandemic.
Hong Kong’s tech-savvy population, high smartphone penetration rate, and advanced digital infrastructure have also contributed to this trend.
After all, the city has one of the world’s highest consumer fintech adoption rates of 67%, significantly ahead of countries including France, the USA, and Japan. The use of digital payments in Hong Kong has also surged in recent years, with digital wallets projected to take the top spot by 2024.
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By GlobalDataFuelling these trends, over 800 fintech companies are now operating in Hong Kong.
Key players include digital bank MOX Bank, one of the first banks to obtain a virtual banking licence from the Hong Kong Monetary Authority in March 2019. They have created a new bank from scratch, delivering a new, digital and personalised experience to empower their customers. Most notably, they launched an industry-leading ground-breaking feature to ‘flip’ between debit and credit spending on the all-in-one Mox card.
Big bank cloud transformation
Asia’s big banks are also undergoing a major technological transformation by embracing cloud computing, with the Asia-Pacific public cloud market expected to grow from $51.2bn in 2021 to $165.2bn in 2026. Many of the city’s major financial institutions are partnering with leading cloud providers to accelerate their transformation journey.
Hong Kong’s Standard Chartered Bank has partnered with fintechs to become a cloud-first bank. In 2020, the bank announced a strategic partnership with Microsoft to leverage its Azure cloud platform and artificial intelligence capabilities to drive innovation and enhance the customer experience.
Another example is HSBC‘s collaboration with fintech Quantexa, which uses AI and machine learning to combat financial crime. By joining forces with fintechs, banks can leverage cutting-edge technology to bring new products and services to market more quickly. Meanwhile, fintechs can benefit from the banks’ established customer base and distribution channels to scale up and reach a wider audience.
An internationally attractive hub
Hong Kong’s strategic location as a gateway to Asia’s vast and rapidly growing markets has made it an attractive destination for international fintech companies looking to expand into the region. This has helped to create a diverse and vibrant ecosystem of fintech startups and established players. The government is also actively helping to develop the city as a leading fintech hub internationally.
In 2020, the government launched the Fintech 2025 strategy to promote the development of fintech in the city. Accordingly, InvestHK, a department of the Hong Kong government responsible for attracting foreign direct investment, has set up a dedicated team to attract the world’s top innovative fintechs to set up and scale their business via Hong Kong into mainland China and Asia.
Additionally, the adoption of 5G technology is expected to drive the growth of fintech in Hong Kong by enabling faster and more efficient payment transactions. Such measures have helped Hong Kong become well-positioned to attract global fintech players and become a hub for innovation in the financial services sector.
A highly supportive regulatory environment
Important to note is that the Hong Kong government has been highly proactive in providing funding, resources, and a supportive environment for fintech startups to grow and thrive. This environment is helping to accelerate the digital transformation of big banks too.
As a result, the city’s booming fintech ecosystem is well-positioned to take advantage of the opportunities presented by the reopening of borders and the growing demand for digital financial services, driving further growth and innovation in the industry.
The Hong Kong Monetary Authority (HKMA) has set up a regulatory sandbox for fintech companies to test their products and services in a controlled environment, fostering innovation in a safe space. According to a Deloitte report, the government has invested over HKD130bn in information technology over the past four years, demonstrating its commitment to driving innovation. More than 40% of entrepreneurs agreed the government is effective at cultivating an ideal entrepreneurial environment, boosting public confidence in adopting startup-led digital solutions and supporting information technology startups.
Furthermore, two years ago, Hong Kong launched a Fintech Proof-of-Concept Subsidy Scheme to encourage fintech players to test innovative concepts that can boost their operational efficiency and expand customer services. Targeted initiatives like this provide a solid foundation for fintech companies to operate with confidence, giving them a competitive edge in the global market.
In summary
The Covid-19 pandemic has accelerated the adoption of digital solutions across all industries, including finance. This has further boosted the growth of Hong Kong’s fintech ecosystem, as more consumers and businesses turn to digital financial services to meet their needs. With a strategic location, strong financial infrastructure, and supportive regulatory environment, Hong Kong is poised to drive the future of finance and set new standards for the industry worldwide. The convergence of the above factors has created a perfect storm for innovation in Hong Kong, driving the rapid growth and success of the city’s fintech ecosystem as well as an acceleration of ongoing digital transformation.
Emre Durusut is Regional Director Apac at Paymentology
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