There is no shortage of initiatives taking place in Hong Kong when it comes to financial technology or fintech. But despite the talk, and some pockets of activity, a sense of an overarching vision for the sector remains vague at best, according to analysts and market participants.
Less clear still is whether that actually matters. Some observers point to the fact that progress is being made in the absence of such an all-encompassing blueprint. Banks are beginning to open up their systems to allow technology companies to provide services to consumers, and even Hong Kong’s much-criticised digital payments space may see progress.
“I think it is still an open question as to whether the attempts to drive the fintech agenda in Hong Kong, and also Singapore, come with a clear view of what success would look like,” said James Lloyd, fintech lead at EY.
The Post reached out to the Hong Kong Monetary Authority to find out what their definition of a successful fintech landscape would be, but no answer had been received at the time of going to print.
“Is it more competition in the financial services sector? Is it more people employed? Is it something else?” asked Lloyd.
“The [UK] Financial Conduct Authority’s objective is to promote competition in the interest of consumers, and an essential part of that is encouraging innovation,” said Anne Wallace, head of the FCA’s innovate programme. She was speaking on a panel of regulators at the HKMA’s fintech day on Wednesday, part of Hong Kong’s fintech week.
Support given to digital banks in the UK fits into this framework, as do policies in the UK and Europe which oblige banks to open up their systems and data, making it easier for consumers to switch banks.
There is no equivalent overarching strategy in Hong Kong, but those employed to sell fintech in the city have found ways of turning this into a virtue.
“I agree that there may not be one overall vision for fintech in Hong Kong, but I don’t think that matters as that’s not really how Hong Kong works,” said Charles d’Haussey, head of fintech for InvestHK, the Hong Kong government’s investment promotion arm.
“What makes Hong Kong attractive is that there is a great deal happening within the financial and technological communities, which is not driven by the government as it is elsewhere.”
InvestHK points to the fact that there are now 130 fintech start-ups in Hong Kong as evidence that progress is being made.
Others took a different approach, saying that a vision was starting to emerge.
“I think we are now starting to see greater structure in fintech in Hong Kong, as dialogue and collaboration increase, and the government and regulators get their ducks into line,” said Musheer Ahmed, interim general manager of the Fintech Association of Hong Kong. He cited as examples Carrie Lam’s policy address in mid October which referred to fintech and devoted four pages to innovation, and the recent announcement of a smart-banking era by Norman Chan, the head of the HKMA, Hong Kong’s banking regulator and de facto central bank.
“If you look at what has been achieved organically over the last few years, then think what we can achieve now,” said Ahmed.
Last month, Chan announced seven initiatives to create a “smart banking” system in Hong Kong.
Among the more eye-catching was a proposal to develop a policy to facilitate the development and wider adoption of application process interfaces (APIs) by the banking sector, “thereby stimulating innovations and improving financial services through collaboration between banks and tech firms.”
APIs are a set of procedures that allow the creation of applications which access the features or data of an operating system or application, in this case those of the banks.
Chan did not say whether banks would be obliged to open up their systems, as they are in Europe and the UK, or whether it would be voluntary.
Nonetheless, market participants welcomed the suggestion.
“In the past, regulators were concerned about how banks partnered with providers and with cloud based solutions. The fact that we have seen a change in the last two years or so, and regulators are encouraging banks to use APIs to partner and collaborate with other providers is important,” said Felimy Greene, Citi’s head of customer franchise for Asia Pacific.
“We are seeing two different approaches. In Europe regulators are much more prescriptive about banks opening up some areas, while throughout Asia Pacific they are less so.”
Even if it is not prescribed, analysts said it was in banks’ interests to make it easier for them to work with other players.
According to analysis by McKinsey, banks around the world are on average posting returns on equity, a key measure of profitability, of between 8 and 10 per cent, which Nicole Zhou , a partner at McKinsey’s banking practice, said was roughly the same as their cost of equity.
“By our analysis, the threat from digital players could see this fall to just above 5 per cent by 2025,” she said.
“What banks need to do to stop this is to embed themselves into a digital ecosystem. Around the world the Chinese banks are furthest on in this regard, though they too have further to go.”
The China Banking Regulatory Commission did little to drive this trend, but Lloyd said this did not necessarily offer a model for Hong Kong.
“The expansion of fintech on the mainland was primarily to the unbanked. In Hong Kong where the unbanked population is much smaller, a shift to greater use of technology by consumers will have to be driven by something else, for me, that should be competition,” he said.
“Ultimately it is market forces driving this,” said Citi’s Greene. “Investor money is flowing to these start-ups, which in some cases have brilliant ideas about how to change the world, and it is up to the banks how to respond.”
For Greene part of the answer is opening up Citi’s APIs to others providers, whether required to or not by the regulator. He said Citi has now released APIs that cover around 80 per cent of their retail activities, which developers across the region can download and work on.
One area in Hong Kong in which change seems to be happening is in the payments space, and this is thanks to a policy shift. Another of Chan’s seven initiatives is the faster payments system, to be introduced in September next year.
Its goal is to allow funds to be transferred easily between bank accounts, and between bank accounts and digital wallets. It looks set to shake up Hong Kong’s payments market, whose participants have often been subject to accusations of stagnation.
“I disagree that Hong Kong has been slow in adopting mobile payments,” said Alex Kong, chief executive of local outfit TNG Wallet during a panel discussion as part of Hong Kong Fintech Week, citing the mature market and the penetration of credit cards as limiting factors. “For developing countries to go from zero to something is easy. The adoption is very fast,” said Kong. “But in an environment like Hong Kong, to improve something good to something slightly better is the challenge.”
That is the benefit of the faster payments system.
“The new infrastructure should drive competition as it will enable different players to offer consumers new services,” said EY’s Lloyd.
“Progress can come from the top down or the bottom up, and there is a lot going on, but it would still be nice to know what we are hoping to achieve,” he said.