Digitalisation of Financial Services in Hong Kong Comes at a Cost
by Fintech News Hong Kong August 2, 2023In Hong Kong, the digitalisation of financial services has expanded financial inclusion through the increasing usage of digital channels and innovations, open banking, as well as advancements in data collection and analytics.
But despite the positive outcomes, digitalisation may also create new risks and amplify existing ones for consumers, especially those relating to data security, data privacy, as well as the fair treatment of consumers, a new report by the Hong Kong Institute for Monetary and Financial Research (HKIMR), the research arm of the Hong Kong Academy of Finance, says.
Titled “The Digitalisation of Financial Services in Hong Kong: Recent Experience, Regulatory Developments and Considerations for Sustainable Innovation and Growth”, the report reviews market and policy factors that have accelerated the digitalisation of financial services in Hong Kong in the past few years.
It also discusses the implications of digitalisation for financial inclusion as well as the associated risks for consumers.
Rapid digitalisation bolsters access to financial services
According to the paper, financial institutions in Hong Kong, including banks, insurers and securities firms, are actively embracing digitalisation in providing and delivering financial services.
This trend accelerated these past years, fueled by a number of market factors, including the city’s high information technology (IT) penetration rate, the COVID-19 pandemic, competition from new entrants and peers, business transformation opportunities, as well as supportive policy initiatives by the government.
As financial services become more digital, customers are increasingly willing to use these services and adoption of digital financial services is rising at a fast pace.
Proportion of usage of digital channels in retail banking in Hong Kong, Source: The Digitalisation of Financial Services in Hong Kong: Recent Experience, Regulatory Developments and Considerations for Sustainable Innovation and Growth, Hong Kong Institute for Monetary and Financial Research (HKIMR), July 2023
Increased digitalisation in the financial sector is helping improve financial access and expanded inclusion, the HKIMR report says.
A wide array of digital channels has increased the convenience of accessing financial services and allowed for the delivery of services through mobile apps and digital platforms.
Meanwhile, advanced data collection and analytics tools are helping financial institutions financial institutions collect and analyse consumer data, resulting in improved know-your-customer (KYC) processes and tailored offerings of products and services that meet consumer needs.
In addition, data analytics are enhancing the operational efficiency and service quality of financial institutions by notably replacing manual verifications of Hong Kong ID cards and insurance claims with automated verifications, as well as improving asset management performance through the use of machine learning (ML).
Digitalisation is not without its costs
Despite the value that digitalisation brings to the financial services industry, regulators and international organisations have identified some potential risks to consumers associated with this transformation. These risks mainly relate to data security, data privacy, and fair treatment of consumers.
With financial institutions becoming increasingly digital, the risk of data breaches and cyber-attacks increases. This could potentially lead to financial loss for consumers and damage the reputation of financial institutions, the report says.
Online fraud attempts have increased substantially in the financial services industry these past years. A 2021 digital fraud research by TransUnion found that the percentage of suspected online fraud attempts within the sector increased by 149% globally when comparing the last four months of 2020 with the first four months of 2021.
At the same time, more and more personal and financial data are being collected and stored digitally, introducing the risk of unauthorised access or misuse of this data. This could potentially lead to privacy violations, the HKIMR report says.
Finally, as financial services become more and more automated and personalised, there is a risk that some consumers may be unfairly treated or discriminated against.
Potential risks to consumers in the digital age, Source: The Digitalisation of Financial Services in Hong Kong: Recent Experience, Regulatory Developments and Considerations for Sustainable Innovation and Growth, Hong Kong Institute for Monetary and Financial Research (HKIMR), July 2023
Featured image credit: edited from Freepik
