Rejuvenated City Eyes Fintech Growth

Hong Kong is home to more than 800 fintech companies – up from 180 five years ago – with the impressive growth attributed to its open market, robust regulatory regime, strong government support and investment in talent. With the city now “fast-tracking” to make up for “time lost” in recent years due to the pandemic, is Hong Kong the ideal hub for fintech development?

There is a sense of anticipation in Hong Kong following the recent easing of tough Covid-19 restrictions on international arrivals and the end of three years of border controls that have isolated the city from mainland China.

“I’m incredibly optimistic about this year – Hong Kong is currently enjoying the microclimate,” says Kevin Rideout, co-head of sales and marketing at Hong Kong Exchanges and Clearing Limited (HKEX). “China has such an influence on the activity of Hong Kong and China has been shut down. As soon as China opened up … supply chains are buffering up, people are returning to work … the borders have reopened and the zero Covid policy has walked.

“So, you’ve seen this bullishness come back to China, and you’ve seen the effect of that on the stock markets in the last week or so. It’s been fantastic. We’re seeing uncertainty moving toward clarity.”

On the 16 Asian Financial Forum (AFF) in Hong Kong this month, Rideout’s optimism was shared by the city’s chief executive John Lee who hailed a “happy and exciting start to the year” with hope for a “bright future” in a keynote speech.

“Thanks to the continued and comprehensive support of our motherland, Hong Kong’s strengths as an international financial center connecting the mainland and the rest of the world are poised to spread,” he said. “We need to tell the world that Hong Kong is back at the centre, and what that means for the countries, economies and companies that work with Hong Kong.

“It means opportunities – long-term, long-term opportunities. Thanks to our ‘one country, two systems’ principle, Hong Kong is blessed with a wealth of opportunities – in financial services, in trade and logistics, in innovation and technology, in arts and culture and much more. So many great stories to tell. So many opportunities to realize.”

Focus on fintech

During his forum speech, Lee also touched on the importance of fintech for the city – “financial technology is the future and we are determined to make it ours”. He outlined how financial regulators and government agencies are working closely to improve Hong Kong’s fintech infrastructure, provide an enabling regulatory framework, while encouraging financial innovation and nurturing talent.

As well Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC) Introducing sandboxes to promote fintech development, and the HKMA’s ‘Fintech 2025’ strategy to drive fintech development, the city also has a number of initiatives in place to position the city as the ideal platform for developing and expanding fintech businesses .

InvestHK, a department of the Hong Kong government responsible for attracting foreign direct investment, has a dedicated fintech team that wants to attract the world’s best innovative fintechs to set up and scale their business via Hong Kong to mainland China and Asia.

In December 2022, InvestHK launched soft FintechHK Community Platform, a centralized fintech platform to connect local and global technology companies with “business, investor and service champions” to drive the growth of Hong Kong’s fintech ecosystem.

The launch also took place in December Office for Attracting Strategic Enterprises (OASES) with a mission to attract representative and high-potential strategic companies from all over the world.

OASES offers tailored incentives in areas such as land, tax, financing and visa application for individual businesses to establish or expand their business in Hong Kong. OASES also offers strategic fintech companies advice on licensing and listing requirements and assists them throughout the process.

Jimmy Chiang, Deputy Director General of Investment Promotion at InvestHK, says: “Fintech is probably one of the fastest growing verticals in the startup ecosystem here. Fintech has become one of the most popular areas for businesses to develop and capture new opportunities.

Encourage innovation

Two years ago, Hong Kong launched a Fintech Proof-of-Concept Subsidy Scheme that encourages fintech players to test innovative concepts that can both increase their operational efficiency and expand customer service. In 2021, the scheme approved around 90 projects, and the second round – which is still open – has already attracted more than 120 applications.

The scheme is operated by Cyberport, a digital community that provides over 47,000 square meters of work space. It currently has more than 1,650 startups and technology companies and supports over 400 fintech companies, including fintech unicorns WeLab. Cyberport also works with the authorities to promote the development and application of Web3 and virtual asset technologies.

Victor Yim, head of fintech at Cyberport, says: “We are one of the largest incubators for startups in Hong Kong supported by the government. We support talent cultivation and help the entire industry with fintech adoption. We also work with various public departments and agencies to come up with financial support.

“Hong Kong is a fantastic market for startups. Those licensed in Hong Kong can easily develop in different parts of the world, be it in Southeast Asia or in Europe or the United States. Hong Kong is truly a leading market in fintech – those of you who make it in Hong Kong can make it elsewhere.”

Collaborative approach

The Hong Kong Science and Technology Parks Corporation (HKSTP) is an innovation and technology (I&T) hub that looks to attract and nurture technology talent for growth in Hong Kong, the Greater Bay Area, Asia and beyond.

Dr. Crystal Fok, head of the STP platform at HKSTP, believes Hong Kong has the potential to break through to become a global fintech service center due to its healthy regulatory environment and innovation in AI technology.

She explains: “We want to nurture start-ups to be active in Hong Kong and mainland China as well as different parts of the world. We incubate more than 100 fintech companies. In addition to providing financial support to them, we also help them build networks and give them ties to the financial sector.”

“We see a lot of fintech companies that have business opportunities, serving some of the big banks. There is a lot of demand for regtechs and fintech companies with AI capabilities are getting very busy because of this.”

HKSTP is currently looking for fintechs to participate Elevator Pitch Competition (EPiC) 2023. The competition is aimed at global start-ups looking to expand their footprint into Asia with the top 50 semi-finalists eligible for an investment of up to US$5 million by HKSTP’s corporate venture arm.

Other incentives include use of InnoCell, a smart living and co-creation space designed for I&T talents to spark collaboration in the Hong Kong Science Park. Plus the chance to take part in the talent pool of HK’s major universities.

Greater Bay Area

As well as welcoming fintech to innovate and grow in the city, Hong Kong is also keen to showcase the opportunities offered through the developing Greater Bay Area (GBA). This region is an urban cluster in southern China, consisting of nine cities in Guangdong Province, as well as the special administrative regions of Hong Kong and Macao.

In accordance Stephanie Yuen, head of Hong Kong digital wealth platform Endowus and a committee leader for Fintech Association of Hong Kong, by working with the Greater Bay Area, Hong Kong can create an even bigger market for the next phase of fintech development.

She says: “Hong Kong has natural competitive advantages in fintech 2.0, as an international financial center with in-depth financial knowledge and expertise. It is now further combined with enormous opportunities offered by the Greater Bay Area, a region with over 70 million inhabitants and a GDP equivalent to South Korea.

InvestHK’s Chiang also believes there are “many exciting opportunities arising from the GBA development”.

“International companies can certainly use Hong Kong as an effective platform to access the GBA
and then the whole of mainland China, he says.

Last year, the launch was also cancelled Greater Bay Fintech Talent Initiative in partnership with Hong Kong Monetary Authority, Bloomberg and Hong Kong United Youth Association. The initiative aims to accelerate local talent development and equip students with relevant skills and knowledge for a digitally integrated financial region

Twenty major financial companies, incl Goldman Sachs, HSBC, JPMorgan Chase, Bank of America, Citigroup and HKEX supports the initiative.