In recent years, the fintech landscape in Hong Kong has emerged as a transformative force, driving the evolution of the global financial services industry.
Its impact extends beyond convenience, as fintech solutions have empowered financial institutions to expand their product and service offerings at a quicker pace and lower cost.
These innovations have also broadened access to financial services for consumers, enhancing their overall experience.
Recognising the potential of fintech, the Government of the Hong Kong Special Administrative Region of the People’s Republic of China (HKSAR Government) has strategically positioned fintech as a catalyst for future growth.
With proactive support from regulators such as the Hong Kong Monetary Authority (HKMA), the Securities and Futures Commission (SFC), and the Insurance Authority (IA), fintech is poised to propel Hong Kong’s financial services sectors forward.
A strategic priority
Hong Kong’s regulators have made fintech a strategic priority for its potential to reshape the financial landscape. The HKMA’s Fintech 2025 strategy for the banking sector, announced in 2021, laid a solid foundation for this roadmap.
Underpinning the strategy was the directive for “All banks go Fintech,” aimed at promoting widespread fintech solutions adoption in Hong Kong’s banking sector.
The Tech Baseline Assessment, conducted in 2021 by the HKMA, evaluated fintech adoption among banks in Hong Kong. The assessment’s findings, published in 2022, identified five key fintech focus areas: Wealthtech / Investech, Insurtech, Greentech, Artificial Intelligence (AI), and Distributed Ledger Technology (DLT).
Fintech verticals and technology overlays
The assessment revealed the importance of fintech verticals and technology overlays in Hong Kong’s financial landscape.
Wealthtech / Investech and Insurtech solutions are projected to see adoption rates rise by 20 to 40 percent from 2022 to 2025, driven by the promising outlook for cross-boundary wealth management, investment, and insurance services within the Greater Bay Area market.
Moreover, the emphasis on sustainability has generated significant demand for Greentech solutions, with adoption predicted to double between 2022 and 2025.
AI and DLT are identified as transformative technologies with the power to reshape the industry. The assessment emphasised their relevance and potential, leading the HKMA to expect continued adoption in line with global trends.
As these technologies hold immense promise across banking, securities, and insurance sectors, fostering cross-sectoral collaboration among financial regulators becomes imperative to propel Hong Kong toward the next phase of fintech advancement.
Envisioning a fintech-driven future
The HKMA’s vision is to position Hong Kong as a premier global fintech hub, offering digitally enabled products, services, and experiences to businesses and consumers alike.
This vision aligns with the Financial Services and Treasury Bureau’s strategic objectives to nurture innovation and enhance the overall competitiveness of Hong Kong’s financial industry.
The HKMA’s Fintech Promotion Roadmap is central to achieving this vision, which outlines a range of initiatives to promote fintech adoption and facilitate the seamless integration of innovative solutions across various financial sectors.
Fostering innovation through regulatory initiatives
To encourage innovation, Hong Kong’s financial regulators have introduced several initiatives to streamline the regulatory landscape for fintech companies.
The IA introduced a fast-track program in 2017 to expedite the authorisation process for digital insurers, enabling them to bring digital offerings to market swiftly.
As a result, four virtual insurer licenses have been granted in Hong Kong, allowing holders to operate exclusively through digital channels.
This spurs digital insurance and creates opportunities for insurtech providers to collaborate with traditional insurers.
The HKMA established the Fintech Supervisory Chatroom in 2017 to provide supervisory feedback on fintech applications to banks and fintech firms.
This channel facilitates open communication through various means, including emails, face-to-face meetings, and video conferences. Similarly, the SFC introduced the Fintech Contact Point and the Fintech Advisory Group to offer guidance, support, and expert advice on regulatory matters related to fintech activities.
Strengthening infrastructure for fintech adoption
To fortify the fintech landscape, regulators and industry bodies have established innovation hubs to support startups and solution providers.
Cyberport and Hong Kong Science and Technology Park (HKSTP) support over 3,000 startups, including local fintech firms, by offering state-of-the-art facilities and various programs.
Additionally, the HKMA collaborated with the Hong Kong Applied Science and Technology Research Institute (ASTRI) to create an innovation hub providing workstations for fintech solution providers to test their innovations.
The HKMA’s Open API and Commercial Data Interchange (CDI) initiatives play a pivotal role in data sharing between financial institutions and fintech solution providers.
Open API facilitates collaboration between banks and third-party service providers, leading to innovative banking products and over one million monthly transactions.
CDI provides a secure platform for financial institutions to access consented commercial data, significantly streamlining processes within banks. These initiatives improve efficiency and open new avenues for revenue generation.
Nurturing fintech talent
The fintech ecosystem’s growth heavily relies on nurturing and retaining top talent. Industry bodies and regulators have implemented various talent schemes to develop a pool of skilled professionals in Hong Kong.
The Financial Services and the Treasury Bureau (FSTB) collaborated with Cyberport to launch the Financial Practitioners Fintech Training Program in 2020. This program equips financial sector professionals with fintech implementation knowledge and skills.
The Enhanced Competency Framework on Fintech (ECF-Fintech) introduced by the HKMA in 2021 aims to enhance the competencies of banking practitioners across fintech areas.
The Fintech Career Accelerator Scheme (FCAS) also offers gap year placements and internships for university students to work alongside industry professionals.
The Industry Project Masters Network (IPMN) focuses on nurturing postgraduate students’ talent and fostering their growth in the fintech sector.
Facilitating financial support
Access to funding remains a challenge for many fintech solution providers, hindering their ability to develop innovative solutions.
The Hong Kong government has implemented various subsidies and grant schemes through industry bodies like Cyberport and HKSTP.
These funds aim to help fintech solution providers realise their business ideas and encourage fintech adoption among users, thereby boosting demand.
Cyberport’s Creative Micro Fund and the PoC Subsidy Scheme financially support startups and fintech solution providers. These funds not only aid in overcoming financial barriers but also encourage innovation and growth in the sector.
Understanding the roadblocks
Before delving into the key initiatives proposed by the HKMA, it’s crucial to comprehend the challenges impeding the seamless integration of fintech solutions.
Various roadblocks emerge throughout the fintech adoption process, often creating friction between solution providers and financial institutions.
These roadblocks include issues related to differentiation strategies, misaligned priorities, lengthy deployment times, cybersecurity concerns, and the development of robust business cases.
Fintech solution providers, eager to stand out in a competitive landscape, tend to focus on factors like solution quality and the strength of their management teams.
However, these aspects might not align with users’ priorities, who are more concerned about deployment times, cybersecurity, and post-implementation support. This disconnect underscores the need for a better understanding of user demands.
The HKMA’s key initiatives
The HKMA has devised a multifaceted roadmap with various strategic and tactical initiatives to address the challenges and roadblocks identified in the fintech adoption process.
These initiatives foster collaboration, provide guidance, and promote stakeholder knowledge exchange. The roadmap outlines several vital initiatives the HKMA aims to implement.
The transformation of the existing Regtech Knowledge Hub into a comprehensive Fintech Knowledge Hub is a central initiative.
This hub will serve as a repository for curated fintech content, facilitating easy access to relevant information, publications, news, and events. It will also incorporate a contact directory, fostering connectivity among fintech users and solution providers.
The HKMA plans to create experience-sharing videos showcasing successful collaborations between fintech solution providers and financial institutions, highlighting real-life use cases.
Quarterly fintech showcase events, accompanied by roundtable discussions, offer a platform for solution providers to openly present their offerings and institutions to discuss their needs.
To address challenges during negotiation and onboarding, best practice guidance will be introduced, focusing on indemnity/liability and data rights.
Research projects will explore emerging technology trends, such as AI and DLT, providing valuable industry insights. Furthermore, webinars, seminars, and training sessions will facilitate stakeholder knowledge exchange, collaboration, and technical skill enhancement.
Looking ahead
While the HKMA’s roadmap represents a significant leap forward in promoting fintech adoption, it’s important to note that challenges remain.
Negotiation and onboarding stages, characterised by misaligned priorities and complex documentation requirements, pose significant hurdles. The HKMA acknowledges these challenges and actively explores additional initiatives to address them.
The HKMA’s Fintech Promotion Roadmap underscores Hong Kong’s commitment to becoming a leading fintech hub. By fostering collaboration, knowledge exchange, and implementing best practices, the city is poised to create an environment where fintech solutions can thrive.
As the financial services industry evolves, the roadmap serves as a bridge to a future where innovative technologies revolutionise how financial services are delivered and experienced.
