In Hong Kong, fintech is reaching mainstream adoption among consumers. Digital payments are becoming the norm in people’s daily lives, virtual banking and wealthtech are gaining rapid traction, and virtual assets are emerging as a legitimate new asset class that provides diversification.

These are among the key findings drawn from a survey of more than 2,000 Hong Kong residents aged 18 or above conducted by the Hong Kong Polytechnic University (PolyU) and local fintech startups Asklora.

Results of the latest PolyU-Asklora Fintech Adoption Index (FAI), released in April 2023, revealed high adoption of key digital financial services, with 94% of respondents indicating using at least one type of fintech products, while 74% indicated using at least two.

Across the five fintech product categories studied, digital payments recorded the highest adoption rate, with 91% of respondents stating that they had adopted digital payments. Most of these respondents said they used digital payments daily or at least once a week to make day-to-day purchases and make peer-to-peer money transfers, showcasing that digital payments are now ubiquitous in Hong Kong.

Virtual wealth came in second, recording a 57% penetration rate, followed by virtual banking (55%) and virtual insurance (41%). Most respondents indicated using virtual wealth and virtual banking monthly.

Virtual banking services are used mostly to transfer money electronically and for bill payment, the study found, while virtual insurance is used mainly to purchase one-time or short-term coverage of less than a year.

Digital assets emerge as legitimate asset class

In light of the recent popularity of cryptocurrency and non-fungible tokens (NFTs), the study also polled respondents on their usage of digital assets. Results show that adoption remains modest, though very optimistic.

Virtual assets and its sub-segment NFT recorded a 23% and 26% adoption rate, respectively, with engagement frequency standing at a few times a year.

Interestingly, the study found a significant overlap between users of virtual wealth and users of virtual assets. 93% of virtual asset adopters said they were also adopters of virtual wealth, showcasing that tech-savvy investors are willing and keen on exploring new technology and investment opportunities.

These results also suggest that crypto-assets are becoming an asset class in their own right and a real alternative for diversifying one’s portfolio.

Findings are consistent with those found in other research studies. The fourth annual Fidelity Digital Assets Institutional Investor Digital Assets Study, released in October 2022, revealed that nearly six-in-ten (58%) institutional investors were investing in digital assets in H1 2022, a six-point increase year-over-year (YoY).

Digital assets ownership was found to be the highest among respondents in Asia (69%). The region also recorded the most affinity for digital assets, with 84% of respondents in the region believing digital assets should be part of a portfolio.

Globally, nine-in-ten institutional investors surveyed (88%) find characteristics of digital assets appealing, citing high potential upside, innovative tech play, and enabling decentralization as the most appealing features of digital assets.

Supporting fintech development

In Hong Kong, adoption of fintech solutions has been encouraged by the government, which unveiled in 2021 its Fintech 2025 strategy. The fintech development plan focuses on creating a next-generation data infrastructure, expanding the fintech workforce, fostering a favorable regulatory landscape, researching central bank digital currencies (CBDCs), and encouraging banks to adopt technology comprehensively.

In line with these ambitions, the central bank granted eight virtual banking licenses in 2019. All of these companies are now operation and had managed to open a total of 1.2 million new bank accounts by the end of 2021, data from the Hong Kong Monetary Authority show.

The city’s Securities and Futures Commission is now readying a new licensing regime for virtual asset exchanges. The new regime, which is due to start on June 01, 2023, is expected to allow retail investors to trade major tokens like bitcoin and ether.

Regulators from around the world have increased their scrutiny of crypto companies this year amid a series of high-profile company failures in 2022 and 2023. Most notably, crypto exchange FTX collapsed in November 2022, triggered by a liquidity crisis of the company’s token, FTT. The crash exposed a US$8 billion in the company’s accounts and left investors and customers scrambling to recoup their funds.

Featured image credit: Edited from Freepik