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$0trillion

$4.7 trillion. That’s how much fintech is estimated to be worth worldwide. It comes as little surprise if you look at the growth trajectory of the financial services industry over the past decade.

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Since 2009, fintech startup formation has ballooned, with over 12,000 fintech companies now operating from bases in global hubs. In 2018, global investment in fintech doubled, soaring to $112 billion over 2,196 deals — led by three mega deals eclipsing $10 billion each, including a $14 billion funding round by Chinese fintech pioneer Ant Financial.

It’s a changing landscape, too. Cross-border mergers and acquisitions activity accelerated in 2018, rising to $53.5 million from $19 million the year prior.

Cross-border mergers and acquisitions

More telling for the future of the industry is that over 80 percent of traditional financial organizations say they will increase collaboration with fintech companies in the next three to five years.

Fintech is certainly entering the next stage of its evolution. But it will take the right combination of conditions for fintech companies to reach their full potential. Long a financial and business hub, here are four factors that are helping Hong Kong turn today’s possibilities into tomorrow’s realities.

Infrastructure

To create products that fit into customers’ increasingly digitized lives, fintech companies need a strong and stable regulatory environment to test new innovations. This is especially true for incumbents looking to partner with new players working with emerging technology.

Hong Kong is paving the way with government initiatives that promote innovation while protecting investors and consumers alike. Having developed three sandboxes, a dedicated Fintech Facilitation Office (FFO) of the Hong Kong Monetary Authority (HKMA), the Fintech Contact Point of the Securities and Futures Commission and the Insurtech Facilitation Team of the Insurance Authority, the Hong Kong government has provided a solid foundation for fintech growth and investment.

Standard Chartered

Success story

In partnership with Hong Kong’s largest telecom, media and digital solutions provider HKT and its parent PCCW, as well as Asia’s largest online travel agency CTrip, Standard Chartered is leading Hong Kong into the next generation of banking with the development of a virtual bank.

Challenge

As new technology streamlines the way the world operates, Hong Kong banks are faced with the challenge of having to innovate to meet customer demands for faster, more convenient, more personalized services while also maintaining their business performance.

Solution

By March 2019, the HKMA issued eight virtual banking licenses — a key pillar supporting Hong Kong’s move into the cutting-edge field of smart banking. SC Digital, one of about 30 to apply, was awarded one of these coveted licenses.

Where they are now

The virtual bank is set to launch by early 2020. With SC Digital integrating virtual banking into the service offerings of PCCW, HKT and CTrip, while providing a suite of retail financial services and products — as well as unique telecom, entertainment and travel offers — all in one place, the unique partnership is set to redefine the banking experience for customers in Hong Kong.

Talent

The ability to attract, develop and retain talent in finance and technology is crucial to scalable and sustainable fintech success.

In Hong Kong, the Technology Talent Admission Scheme — a fast-track visa admission scheme for overseas talent — has helped innovative digital communities, such as Cyberport and the Hong Kong Science and Technology Parks, attract high-caliber foreign talent in emerging financial technologies. Meanwhile, programs such as the Cyberport Tech Career Placement and Internship Programme prepare local students and recent graduates for success in fintech.

By developing such a diverse and dynamic talent pool, the Hong Kong government is enabling fintech companies to emerge and expand quickly.

AMTD

Success story

The independent investment banking firm has evolved from a big data-driven financial services company to into a fully-fledged financial institution. Over the summer of 2019, AMTD became the first home-grown financial institution in Hong Kong to debut on the New York Stock Exchange (NYSE).

Challenge

As AMTD began to rapidly scale its fintech vertical, the company recognized that the expertise it requires doesn’t always exist in Hong Kong.

Solution

AMTD has collaborated with the Hong Kong Polytechnic University to nurture fintech talent in Hong Kong. They established the AMTD FinTech Centre of PolyU Faculty of Business, which focuses on talent development, scientific research and innovative project incubation.

Where they are now

The AMTD FinTech Centre of PolyU Faculty of Business will roll out Hong Kong’s first fintech doctoral degree program later this year. At the same time, the company is accelerating its expansion through its unique “Spider Net” tactic, through which the company sold pre-IPO stakes to several former underwriting clients, including Xiaomi, to build a more diverse network and attract talent.

Market

While fintech companies may eye global growth from the get-go, it helps to start in a market where access to capital is easy and both incumbents and consumers are open to innovation. Hong Kong fintechs raised a total of $1.1 billion from 2014 to 2018. In the first half of 2019, Hong Kong fintech companies raised $152 million, up 561% from the same period last year.

Hong Kong is the world’s largest offshore RMB hub, as well as the gateway to Asia’s largest markets, including mainland China. With China looking to shake up global trade and business through its Belt and Road Initiative, Hong Kong is ideally situated for companies looking to enter mainland China as well as for Chinese fintechs to go global.

From IDG Capital to the Alibaba Entrepreneurs Fund, there are several major venture capital funds in the SAR as well. In July 2019, leading firm White Star Capital announced it had set up a base in Hong Kong, helping foreign startups enter Asia while facilitating the global expansion of local startups.

TransferWise

Success story

By using real-time, mid-market exchange rates, London-based startup TransferWise makes moving money abroad more transparent and easier than through a bank. While banks charge up to 5 percent for international money transfers, the global average price through TransferWise is less than 1 percent. In 2018, TransferWise launched its services in Hong Kong, extending its footprint in Asia.

Challenge

Transferring money to and from Hong Kong, whether for personal or commercial reasons, had traditionally depended on operators that take three to five working days to move money to another country and often hide fees in exchange rate mark-ups. That makes it difficult for people to work out exactly how much they are being charged for a transfer.

Solution

Last year, TransferWise began offering Hong Kong customers the service of sending money to 71 countries around the world. Venkatesh Saha, head of APAC and Middle East expansion at TransferWise, notes that this expansion came about because of the high number of requests from Hong Kong’s digital-savvy customers — in 2019, the consumer fintech adoption rate reached 67 percent in Hong Kong.

Where they are now

According to Saha, the volume TransferWise handles in Hong Kong has grown rapidly in one year. That growth has helped the company expand its customer base to 5 million, increase the amount of money it moves every month to $5 billion and save customers $1.3 billion per year compared to using their banks.

Network Effect

As traditional banks seek to expand partnerships with fintech startups, and while startups seek growth and support, streamlining collaboration becomes ever more important.

Led by both government initiatives and private leadership, the fintech community has boomed. There are now over 600 fintech companies in Hong Kong, as well as several fintech associations.

Major events such as Hong Kong Fintech Week — the Asia’s global fintech event—have attracted thousands of thought leaders, executives, founders, investors, and regulators to Hong Kong.

This year, the Alibaba Entrepreneurs Fund and InvestHK teamed up to launch the FintechHK Global Competition. The pitch competition, open to startups less than five years old from around the world, offers up to $500,000 in investment, as well as $20,000 in cash, to the winners.

Success story

Bluefire AI, a Hong Kong-based capital market intelligence engine, has seen its star rise after claiming the third place in the Fast Track Competition at Hong Kong Fintech Week 2018, as well as the Best Mature Stage Startup prize at StartmeupHK 2018.

Challenge

In Hong Kong, fintech businesses face tough competition as they strive to achieve profitability. Mark Andrews, managing director of Bluefire AI, commented that “the greatest challenges are standing out to investors in a crowded field and finding the right talent to help the company scale fast.”

Solution

With over 8,000 delegates from across the world attending Hong Kong Fintech Week, the entire event, and specifically the Fast Track Competition, gave Bluefire AI exposure to new clients, potential recruits and investors, says Andrews. This win was coupled with the “great deal of support for innovation in Hong Kong through government sponsored incubators like HKSTP and Cyberport,” he adds.

Where they are now

Since last year’s Fast Track Competition, Bluefire AI has been invited to participate in the Investment Association’s Fintech Incubation Program in London and Educated Asset Managers in the UK on artificial intelligence. The startup is now preparing to open its first office in North America.

Hong Kong Has All the Pieces in Place
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