In 2024, Hong Kong further cemented its position as a leading fintech hub in the world, with the number of fintech companies increasing by 15% year-on-year. This expansion was fueled by growth in verticals including digital assets, green fintech and cybersecurity.

2024 saw the government introduce several initiatives to drive tokenization, including Project Ensemble, the EvergreenHub, and the stablecoin issuer sandbox, aimed at enhancing efficiency in fields such as capital markets and payment systems.

To promote the responsible development of artificial intelligence (AI), Hong Kong implemented new policies and launched collaborative efforts like the GenAI Sandbox, fostering innovation while addressing potential challenges in the financial services sector.

Finally, the expansion of the Commercial Data Interchange (CDI) and new measures under the Banking Sector SME Lending Coordination Mechanism were rolled out to improve access to finance for small and medium-sized enterprises (SMEs).

Hong Kong’s fintech sector continues to grow

In 2024, Hong Kong continued to solidify its position as a global fintech hub, with over 1,100 companies specializing in AI, Web 3.0, blockchain and other innovation tech applications operating in the space. This represents a 15% increase from 2023, highlighting the sector’s robust expansion and reflecting the city’s growing appeal for global businesses.

Between 2023 and 2024, the fastest-growing sub-sectors were digital assets, cryptocurrency, and blockchain applications; green fintech; and fintech cybersecurity.

Hong Kong’s fintech landscape is currently dominated by three key sub-sectors: digital assets, cryptocurrency and blockchain applications; wealthtech; and payments and remittances.

The city is home to over 10 unicorn companies. Notable fintech unicorns include HashKey Group, an end-to-end digital asset financial services group; ZA International, a licensed virtual bank; WeLab, an online financial company; and Airwallex, a cross-border payment service provider and more.

According to Algernon Yau, InvestHK, the government agency responsible for attracting foreign investment, supported nearly 500 enterprises in establishing offices in Hong Kong in 2024. Notably, 23% of these new businesses focus on fintech products, reflecting Hong Kong’s strength in the sector and highlighting the city’s strategic position as a “super connector” in the Asia-Pacific (APAC) region.

Hong Kong doubles down on Web 3.0 and tokenisation

Christopher Hui, Hong Kong’s Secretary for Financial Services and the Treasury, announced in October a new law to be enacted by the end of 2024 that will extend Hong Kong’s tax concessions to a wider range of assets, including virtual assets. He added that further regulation for stablecoins and a licensing regime will be introduced next year for providers of virtual assets custodian services.

These measures are part of Hong Kong’s broader strategy to accelerate the adoption of tokenization. Key initiatives announced this year include:

• Project Ensemble, a new wholesale central bank digital currency (wCBDC) project designed to foster tokenization in Hong Kong;
• Project Ensemble Sandbox, a platform which supports experimentation with tokenization and CBDC;
• The next phase of Project Evergreen, which explores how distributed ledger technology (DLT) could improve capital market processes and enhance market efficiency, liquidity and transparency, and the introduction of a new measures to promote wider adoption of tokenization in capital markets;
• EvergreenHub, a knowledge repository launched by the Hong Kong Monetary Authority (HKMA) for industry insights on digital bonds to guide issuers and investors through the tokenization process; and
• The stablecoin issuer sandbox, launched in March 2024 to allow institutions with plans to issue stablecoins in Hong Kong to conduct testing on their operational plans, as well as facilitate two-way communication on proposed regulatory requirements.

Fostering responsible AI

In October, the Financial Services and the Treasury Bureau (FSTB) issued a policy statement on responsible application of AI in the financial market.

Recognizing that the application of AI in the financial services sector has three key attributes, namely data-driven, double-edged, and dynamic, Hong Kong will be adopting a dual-track approach for AI application in the financial services sector in Hong Kong. This approach will aim to promote development of AI adoption by the financial services industry, while at the same time addressing the potential challenges.

To further support AI development, HKMA collaborated with Cyberport to introduce the GenAI Sandbox. Launched in August, the sandbox aims to facilitate interactive industry engagement, enabling HKMA to draw insights, share good practices, while keeping its guidance relevant and fit-for-purpose in the light of the latest advancements in AI.

Hong Kong’s fintech ecosystem features a number of sandboxes for banking, insurance and securities. These frameworks provide a controlled space for live experimentation, allowing companies to explore novel ideas without the immediate costs and constraints of full regulatory compliance. Sandboxes are also a powerful tool for regulators to gain insights on emerging trends, enabling them to assess potential risks and determine if further regulatory action or adjustment is necessary.

As of the end of September 2024, pilot trials of 352 fintech initiatives had been allowed in the Fintech Supervisory Sandbox by HKMA. Separately, banks have collaborated with tech firms in 244 trial cases.

Expanding SME access to finance

In 2024, Hong Kong expanded the capabilities of CDI to support the digitalization of Hong Kong’s financial services industry and enhance the broader digital economy.

Launched in 2020 by HKMA, CDI is a consent-based financial data infrastructure designed to enhance data sharing by enabling financial institutions to retrieve enterprises’ commercial data, particularly from SMEs, from both public and private data providers.

In August, the linkage between HKMA’s CDI with the government’s Consented Data Exchange Gateway (CDEG) became fully operational. Through this connection, the Companies Registry (CR) became the first government data source available via CDI, allowing banks to directly access company information, such as names, registered addresses, and share capital structures, and streamlining key processes like account opening, fraud detection, and know-your-customer (KYC) procedures.

HKMA is also working on additional integrations to enhance CDI’s functionality, including with the Land Registry to improve mortgage and loan assessments for both individuals and businesses; and with the Hong Kong International Airport Cargo Data Platform to incorporate cargo logistics data to streamline lending.

Finally, HKMA is exploring pilots on cross-boundary credit referencing with Mainland China’s credit reference platforms to enhance cross-boundary banking service offerings to SMEs.

It’s also participating in Project Aperta, a cross-jurisdictional collaboration on open finance application programming interfaces (API) network to reduce frictions and costs in global finance. Initial use cases will focus on trade finance for SMEs.

CDI is one of the many initiatives launched by HKMA to assist and support SMEs. In March, a series of measures were announced to ease SMEs’ financial burdens, boost their competitiveness, and foster growth amid changing economic conditions. These measures include:

• No early repayment demands from banks participating in the Banking Sector SME Lending Coordination Mechanism;
• Six-month transition for credit limit changes;
• Faster loan processing under the SME Financing Guarantee Scheme;
• Credit relief for struggling SMEs;
• Custom SME financial solutions, including unsecured loans and digital services;
• Lower fees and interest from participating banks;
• A one-stop information platform;
• Easier switching between banks; and
• Regular engagements with SMEs.

Since the launch of these measures, a total of around 20,000 SMEs have benefitted from these measures, involving an aggregate credit limit of over HK$44 billion, according to HKMA.

Separately, the Taskforce on SME Lending was jointly established by the HKMA and HKAB in August, looking to further strengthen the related work for supporting SMEs in obtaining bank financing at both the individual case and the industry levels.

Fintech Connect: a cross-sectoral sourcing platform

2024 also saw the launch of Fintech Connect, Hong Kong’s first cross-sectoral sourcing platform. The platform, which debuted on October 28, is designed to bridge financial institutions with fintech solution providers, fostering innovation and collaboration.

The platform aims to promote precise matching of supply and demand for fintech services, fostering collaboration and innovation within the financial sector. Itsupports Hong Kong and Qianhai-based fintech companies, fostering greater collaboration in the Greater Bay Area, and promoting mutual growth in the fintech ecosystem.

Featured image credit:edited from freepik