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Fintech: The Next Key Pillar for the Hong Kong Economy?
One of the most common questions I get asked as a recruiter is what the next big industry in Hong Kong is. This is often hard to predict without a crystal ball, and my answer is usually based on market observations and insights I have gained from working with a number of clients and candidates. The next big industry for 2018 needs no predictions, however, and here’s why.
From a talent market point of view, the growth of FinTech looks rosy. According to InvestHK, there were over 130 Fintech start-ups in Hong Kong in 2016, almost a two-fold increase when compared with a mere 80 Fintech start-ups in 2015.
Amongst these start-ups, the FinTech ecosystem has bred a number of successful companies including WeLab, an online lending platform, which raised USD160 million in Series B funding in 2016 and is ranked 36th on KPMG’s 2017 FinTech 100 list. Another promising start-up is TNG Wallet, an e-wallet app, which raised a record of USD115 million in Series A funding in 2017 in Hong Kong.
Accenture also estimates that Hong Kong-based FinTech investment has jumped to around USD545 million in 2017, a five-fold increase from the USD108 million raised in 2015. Since 2010, Hong Kong’s FinTech companies have raised USD940 million collectively in comparison to other FinTech hubs in the region, such as Singapore and Australia which raised USD387 million and USD714 million in FinTech investments respectively.
This is further backed by the Hong Kong government, who have signed major international agreements with the UK, UAE, Australia, Switzerland, Malaysia, and Singapore to enhance collaboration in information and infrastructure sharing. The Hong Kong government will also launch a blockchain-based trade finance platform later this year.
Hong Kong’s comparative advantage
This success couldn’t have been possible if not for a number of factors. A number of well-known think-tanks, senior FinTech professionals as well as FinTech start-ups, highlight why they think Hong Kong can blossom into a global FinTech hub:
- Prime access to capital flow from China and the West – Many of Hong Kong FinTech companies’ clients or VCs hail from Mainland China. With its proximity to China, Hong Kong is the perfect gateway to reach investors. This is coupled with Hong Kong’s core competence in quality of business culture, infrastructure and strong public institutions such as the rule of law, protection of intellectual property rights, logistics and supply chains, and low tax rates, making Hong Kong an ideal location for foreign investment.
- Abundance of financial services talents and clients - With financial services encompassing around 18% of Hong Kong’s GDP, a top global IPO market with total funds raised reaching USD25 billion in 2016, over 150 banks and 600 brokers, and annual assets managed exceeding USD2.5 trillion, Hong Kong provides tremendous advantage for FinTech start-ups to partner with large financial institutions and incumbents to provide innovative solutions. There is also an abundance of quality FI talents that FinTech companies can tap when looking to fill FinTech job vacancies.
- Regulatory environment – Hong Kong is considered as a “liberally regulated environment” and this gives a sense of confidence to most FinTech entrepreneurs.
- Transparent information flow – Hong Kong is the destination to be at for a number of FinTech events and seminars such as the StartmeupHK Festival and the annual Hong Kong FinTech Week. Besides knowledge sharing, many companies find it easy to network with potential business partners or pitch to investors because information flow is quick and transparent.
- A collaborative network – Hong Kong’s government, financial institutions and entrepreneurs have been collaborating to make the region a suitable breeding ground for FinTech start-ups. With a large range of accelerator and incubator programs for start-ups to choose from such as the DBS Accelerator, Accenture’s FinTech Innovation Lab and Standard Chartered Supercharger.
While all may look promising, professionals within the FinTech will need to be cautious of issues that might undermine the FinTech industry. For example, Hong Kong’s close proximity to China is more of a double-edged sword because of the highly sensitive nature of the FinTech industry. Association with China may therefore impede access to certain Western markets like the USA.
And while there is an abundance of quality FI talents, quality tech talents are lacking. This could be partly due to a weaker culture and less collaborative atmosphere in Hong Kong as compared to other regional hubs like Singapore.
Another impediment is the complex regulations posed by Hong Kong’s government. With four separate regulatory agencies in Hong Kong’s current regime, integration between the finance and technology sector is poor. This results in regulatory uncertainty making it difficult to determine which set of regulation should be applied to certain FinTech companies. For example, crowdfunding activities which are not regulated in Hong Kong, may be subject to the provisions of either or all of the following: Companies Ordinance, Securities and Futures Ordinance, and the Money Lending Ordinance.
In addition, while Hong Kong has taken a step forward by introducing FinTech regulatory sandboxes for the HKMA, SFC, and IA to engage with FinTechs in the early stage of development, sandboxes in fact are not cross-sectorial and this makes it very difficult for truly innovative FinTech products to proceed and get the necessary licenses.
Potential for FinTech candidates
What does this mean for potential FinTech candidates then? There is clearly a shortage of talent, and candidates who are looking to get into FinTech need to be able to grasp the basics of FinTech and different forms of technology like artificial intelligence, blockchain, cybersecurity, cloud computing, and big data analytics.
In addition, candidates will need to be well-read, in order to stay up-to-date on different FinTech-related regulations including the big three of the European Union: General Data Protection Regulation, Payment Services Directive 2, and Markets in Financial Instruments Directive II, as well as other regional legislations so as to ensure compliance and avoid recalcitrant behaviour.
Other forms of experience include being able to distinguish between fads (speculative ICOs) and genuine business (viable application) and understand FinTech in developing markets such as in China and India – identifying opportunities these countries have to offer for the unbanked population in the form of electronic payments.
Of course, knowledge isn’t the only criteria. Working in a start-up means less compliance, and no more huge hierarchies. Candidates will need to be flexible and think on their feet. They also have to be prepared for the challenges of a small start-up - wider responsibilities and less job security.
We are currently going through one of the most exciting periods in financial history, with FinTech as a catalyst that is transforming the broader financial industry. Visit our Market Insights section for more industry insights.
Credits to Our Hong Kong Foundation for contributing key statistics.