Behind the scenes, Hong Kong is setting the stage for the next Fintech revolution

All over the world, central banks are exploring and experimenting with the potential of Central Bank Digital Currency (CBDC), with around 100 countries having so far launched projects related to the technology. While the technology is still in its infancy, it has the potential to fundamentally change the global payment landscape and international trade.

As a global financial center, Hong Kong is at the forefront of CBDC innovation. Since 2017, the Hong Kong Monetary Authority (HKMA) has been researching the potential of Distributed Ledger Technologies, their possible applications and benefits, resulting in several well-recognized projects.

On the wholesale CBDC (wCBDC) front, the HKMA partnered with the Bank of Thailand to launch Project Inthanon-Lion Rock in 2019 to explore the use of CBDC in cross-border payments. The project eventually evolved into the mBridge trial platform, involving the HKMA, Bank of Thailand, Central Bank of the UAE, People’s Bank of China, as well as strong support from the Bank for International Settlements Innovation Hub (BISIH). The platform successfully demonstrated that the technology can speed up cross-border payments to near real-time. Along with 22 private sector participants, it also identified 15 use cases for CBDC.

On the retail CBDC (rCBDC) front, Hong Kong is leading the way with the HKMA recently publishing a whitepaper exploring potential technical design options for the issuance and distribution of rCBDC. Based on research from the HKMA and the BISIH Center in Hong Kong, the study is one of the first to reveal a ground-breaking design that strikes the balance between traceability and privacy.

Hong Kong’s leadership in the CBDC aptly demonstrates that the city has set the stage for the next fintech revolution. With a wide range of initiatives designed to accelerate innovation, as well as a solid foundation for scaling fintech businesses, the city is set to play a key role in determining the future of finance and technology.

Accelerating Fintech innovation

Building on Hong Kong’s leading position in the field, InvestHK and the HKMA recently announced the addition of the CBDC track to the Global Fast Track (GFT) programme. The track provides opportunities for banks, fintech firms and technology companies from around the world to work with the central banking institution to launch pilots and conduct research in eight focus areas, including rCBDC, wCBDC, programmable money, interoperability, privacy, cyber security, foreign exchange and liquidity management, and offline payments. In addition, shortlisted candidates will be invited to pitch sessions and compete for three awards – Best Use Case Award, Best Technology Award and Best Ecosystem Award – to further promote future use of breakthrough solutions. The CBDC track has so far been enthusiastically received by the industry, which shows the timeliness of the initiative.

The addition of the CBDC track is part of the expanded GFT 2022 programme, which aims to connect global fintech companies with a diverse range of Asian businesses, investors and service providers to explore partnerships and investment opportunities. Through the matching portal, pitching competition and mentoring sessions, the year-long program provides comprehensive support to global fintech firms working in eight verticals, including Commercial Banking, InsurTech, InvestTech and WealthTech, Payments, RegTech, Retail Banking and Environmental, Social, and Governance (ESG ), to scale and grow in Asia and beyond.

During last year’s GFT, over 300 fintech companies received support from over 90 local and regional companies and investors. Building on this success, this year’s expanded program will for the first time feature service champions selected from a wide range of professional services providers, including Bain & Company, Google, Dow Jones and more. Their addition to the program will enable participating fintech firms to draw from a wide range of relevant experiences and access tailored support to accelerate their innovation and growth.

A fertile breeding ground for the next big thing in Fintech

As innovations in the fintech world continue to emerge at breakneck speed, the Hong Kong Special Administrative Region (HKSAR) government has proactively updated guidelines to ensure the sector can grow in a balanced and sustainable environment. For example, a new licensing regime for virtual asset providers will come into effect next year, ensuring adequate protection for investors and relevant stakeholders in the ecosystem.

Beyond supportive government-led policies and programs, Hong Kong offers a solid foundation for companies to innovate, scale and transform the future of fintech.

Already home to over 600 fintech firms, the fintech adoption rate in Hong Kong is expected to continue to increase significantly. Some of the leading growth sectors over the next three years include Greentech with a projected growth rate of over 121% according to the Hong Kong Monetary Authority, Legaltech (92%) and Wealthtech (39%), indicating a huge appetite for innovation among financial institutions in town.

In the meantime, there are many opportunities in Hong Kong when it comes to access to finance. Not only is the city the world’s top IPO market for seven of the past 12 years, but it also has the second-largest private capital pool in Asia Pacific, totaling $170 billion, according to the AVCJ. In terms of public funding, the HKSAR government recently launched the HK$5 billion Strategic Technology Fund to fill the gap between Series A and Series B funding for startups with the aim of further facilitating growth.

As the city continues to adapt, Hong Kong is poised to lead the next wave of fintech innovation. Combining a number of exciting initiatives with positive government support and a diverse ecosystem, the world-renowned financial center offers the perfect starting point for startups and scaleups to become fintech leaders regionally and globally.