Only 51% of Hong Kong institutions have adopted a ‘disruptive’ strategy, compared to 56% globally and 59% in China, according to the PwC Global Fintech Survey 2017. However, 82% of financial institutions in Hong Kong intend to form partnerships with fintech companies in the next three to five years.

Hong Kong respondents identified regulatory uncertainty (60%) as the key challenge to fintech innovation. 87% also noted the difficulty of hiring and retaining people who can innovate.

Regulatory uncertainties

Experts have warned about the risk of Hong Kong falling behind other hubs in terms of fintech development. Ian Wood, a partner at international law firm Simmons and Simmons who specializes in regulatory matters, suggested Hong Kong look at what was happening in Britain and Singapore, mentioning the Monetary Authority of Singapore’s inaugural Fintech Festival in November last year, as well as the regulatory sandbox initiatives that have enabled fintech startups to develop and test their ideas in a “safe space” and without regulatory pressure.

Wood said that the complex regulatory regime has made Hong Kong conservative in developing fintech in contrast to mainland China.

“It can be difficult to determine which regulatory regime applies to fintech service,” Wood told the South China Morning Post. “Coupled with high compliance costs, this can deter entrepreneurs from entering the [Hong Kong] market.”

Mainland China has been developing quickly in fintech, supported by “tremendous talent, abundant funds and loose regulation,” according to Kelvin Teo, chief executive of Singapore-based fintech company Funding Societies.

Matthew Phillips, financial services leader for PwC China and Hong Kong, advised Hong Kong’s large incumbents to partner with and learn from startups.

“If Hong Kong can nurture the technology skills it needs then it can gain a lead,” Phillips said. “There are opportunities to deploy these solutions not only into China but across the region.”

Despite the challenges, the PwC survey also found several exciting opportunities in the fintech sector in Hong Kong. Henri Arslanian, fintech and regtech lead for PwC China and Hong Kong, mentioned respondents’ strong interest in robotic process automation and other regtech solutions that can greatly reduce the cost compliance. 

“This presents a unique opportunity for Hong Kong to position itself as a relevant hub for such services that can then be successfully exported regionally, or even globally,” Arslanian said.

New robo-advisor seeks to serve the masses

Last week, Hong Kong-listed Yunfeng Financial Group launched a mobile app named Youyu Robo Advisor. The mobile app, currently available on iPhone devices only, aims to help investors allocate global assets more efficiently and be accessible to lower-income investors. In particular, Youyu targets anyone that has a bank account in Hong Kong with at least $800 to invest.

CEO Li Ting told Bloomberg that the company expects to attract tens of thousands of investors by the end of the year.

Youyu currently partners with 13 global mutual and money-market funds, including those run by Franklin Resources Inc. and Manulife Financial Corp. The app advises users based on their risk tolerance but also allows them to allocate money based on personal decisions.

Yunfeng Financial Group is backed by Jack Ma, the chairman of China’s largest e-commerce company Alibaba, who owns 29.85% of its holding company.

According to a survey by Accenture released earlier this year, more than 75% of customers in Hong Kong are willing to receive automated advice for banking, purchasing insurance or investment advice.

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