Hong Kong continues to thrive as Asia’s fintech capital
By King Leung, Head of Fintech at Invest HK
Hong Kong’s cross-boundary innovation is leading the disruption in digital payments. King Leung, Head of Fintech at InvestHK shares his perspective with views from across city’s fintech ecosystem.
Fintech companies and entrepreneurs have always flocked to Hong Kong to scale up across Asia due to the city's natural geographic advantages. As a global financial hub, the city is the ideal launchpad for Chinese businesses to go public and to raise international capital, while serving as a venue for multinational companies that want to connect with Chinese capital market opportunities. But there is one advantage that can sometimes be overlooked. It is that the city’s financial hub status makes it the natural focal point of fintech collaboration during moments of disruption.
It is disruption-ready finance hubs like Hong Kong that are best placed to emerge as the leaders of the new global economy after the pandemic. The crisis has accelerated the shift to digital payments, and Hong Kong is leading this global change through cross-boundary payment innovation by working closely with other economies to become a regional platform for digital trade and transactions.
At a time when every economy is recovering from the impact of the pandemic, the key question has become how to encourage business growth. Reducing payment friction in cross-boundary payments sits at the top of the agenda at a time when Hong Kong has taken the lead in the global exploration of digital assets. This means the city has become the natural home for fast-tracking fintech firm scale-up opportunities.
“Not only do we have an advantage, it is also multiplied by the power of three. In an ecosystem of three neighboring jurisdictions – Mainland China, Hong Kong and Macau – we have three currencies, three KYC frameworks, three identity systems. This is an innovation sandbox like no other.” - Charles d’Haussy, Managing Director - APAC at ConsenSys
Hong Kong has taken the central hub role in what is the most advanced field experiment for cross-boundary payments using digital currency, the Multiple Central Bank Digital Currency (m-CBDC) Bridge, ranked first globally by PwC. This clearly defined focus on cross-boundary initiatives is an early lead that will expand business integration across China and the region.
The immediate benefits for businesses will go first to Retail payments and B2B payments, which, according to a recent Accenture study are among the leading commercial benefits of the GBA plan.
This is a few years in the making. Hong Kong set out on this course following the HKMA’s Project LionRock study in 2017. Currently, cross-boundary remittances are quite expensive for individuals and firms, but with CBDCs the cost of remittance would be reduced significantly. Effectively, this would supercharge the economic integration and expansion of the Greater Bay Area by making finance seamless across boundaries.
“Hong Kong is now the aggregator of all this digital innovation for Mainland China and other economies, too. Hong Kong is helping the world’s major economies to understand how they can move forward and where the demand is coming from.” - Lucy Gazmararian, Founder & Managing Partner at Token Bay Capital
Companies are drawn to places where they can access capital easily. Cross-boundary digital payments increase profitability, making financial transactions with customers, suppliers, and the government more convenient, safer, and cheaper. Paying wages digitally is safer and more cost-effective for employers. And digital payments automatically provide users with a credit history and can thus improve an entrepreneur’s access to credit. But on a broader scale, digital payments magnify the need for regulatory integration by driving the deployment and adoption of new technologies in high-growth markets around the world. Hong Kong is one of a few financial hubs with the existing infrastructure to support this global transformation.
“Hong Kong is driving Money 3.0 and other finance capitals are playing catch-up. Fintech is now maturing and Hong Kong is about to become a microcosm for that in the coming years.” - Deng Chao, Managing Director of HashKey Group
Also overlooked are the capital increases flowing into and out from Hong Kong. The city recorded a net inflow of capital to the city throughout last year, and the Hong Kong exchange posted a 70% year-on-year increase in net profit in Q1 this year, driven by strong market turnover and IPOs.
Numbers of IPOs are at all-time highs. Hong Kong was placed second after the NASDAQ last year, and has taken top place in seven of the last 12 years. The impressive growth of Stock and Bond Connect has also confirmed Hong Kong’s role as the gateway between the Mainland and the world.
Now Hong Kong is home to one of the world’s first Bank of International Settlements Innovation Hubs, it can serve as a focal point for a network of central bank experts on digital currency innovation. Its advantage, therefore, is not merely an early digital currency lead. Hong Kong is developing the field on which other economies will soon come to play a role. This time is, in fact, a historic opportunity to shape a new era of finance and Hong Kong finds itself in the driver’s seat as Asia’s fintech hub.