Fiercely fighting for fintech: After a slow start, Hong Kong banks and regulators are battling hard to keep up with the revolution in financial technology
Hong Kong’s leading group for IT professionals has joined forces with The Hong Kong Institute of Bankers (HKIB) in an effort to create a flourishing financial technology industry.
The Hong Kong Computer Society (HKCS), the city’s main association for IT workers, and the HKIB signed an agreement in July to collaborate on promoting fintech. The agreement will see the HKIB sponsor an award at the annual ICT Awards, and both groups will cooperate on education, training and events – including the Annual Banking Conference and November’s Hong Kong International Computer Conference.
“We’re working together to host fintech sessions in the respective annual conferences,” says Michael Leung, president of HKCS, chief information and operations officer at China CITIC Bank International, and executive committee member at HKIB. “The two organisations are working very closely to promote fintech and in training fintech practitioners. I think the area holds a lot of promise.”
Leung says this type of cooperation is required to drive the development of a sustainable fintech environment in Hong Kong. He is eager to see greater collaboration between start-ups, universities, the city’s financial regulators and the banks.
There are dozens of start-ups in Hong Kong working in the gamut of financial services, although the city lags behind the leading centres for fintech activity in New York and London. Hong Kong’s regional competitors such as Singapore, mainland China and Malaysia are also moving rapidly to foster fintech businesses.
The promise of gaining an edge over a competitor, or of discovering an industry-wide disruptive breakthrough, resulted in more than US$12.2 billion invested in research and development last year alone. In 2013, the figure was slightly more than US$4 billion, according to Accenture, a management consultancy. It says investment in the Asia-Pacific region tripled to US$767 million last year.
The size of the industry is already significant. The British government estimates that fintech currently generates about £20 billion (HK$240 billion) a year, according to its “Landscaping UK Fintech” report published at the end of February. In London alone, investment in fintech business ventures is currently growing at more than 70 per cent annually, Accenture says.
Fintech covers a range of technologies across the retail and commercial aspects of the banking industry. There’s the familiar “-less” technologies – as Leung calls them – of cardless and cashless transactions. There are the also the “bankless” areas of innovation, such as crowdfunding and microfinancing, that fall into the broader category of peer-to-peer lending. On the banking operations side, there are advances in areas such as data harvesting and analysis, online security, and modelling that could help deliver better services to customers.
There’s no doubt Hong Kong was a little late to the party. At the Asian Financial Forum in January, Brett King, an Australian “futurist” who specialises in banking innovation, said US$100 billion was invested in upgrading and overhauling technology in the global financial services sector last year.
“How much fintech investment was done in Hong Kong last year out of this US$100 billion pie? It’s less than US$100 million. There was at least US$400 million invested in Bitcoin alone last year, so four times the investment in Hong Kong,” King said.
Another recent innovation has seen greater collaboration between the banks and start-ups in accelerator programmes, which give banks access to new and novel technologies in return for funding and resources.
The Fintech Innovation Lab, currently underway at Cyberport, is run by Accenture and backed by 12 banks. The banks offer the seven participating start-ups from around the world access to senior-level mentoring, coaching, workshops and networking opportunities over a 12-week period.
Among this year’s lab intakes is Ironfly Technologies, a Sheung Wan-based firm that offers real-time data visualisation for asset managers and investment houses. The technology allows users to tweak their risk profile and assess a model’s performance and compliance.
Ironfly chief executive Kevin Mak says Asian banks may have initially been slow to act on fintech, but that is changing as investment “pours in”.
“Asian banks have lagged in financial technology innovation because they haven’t really needed to do so for growth,” he says. “A good example is retail and online banking. With a high population density and comparatively lower cost of labour, it has been easier to create a new physical branch than invest in speculative research and development.”
Having the right regulatory environment is also key. In this year’s Budget, Financial Secretary John Tsang Chun-wah announced he had asked the secretary for financial services and the treasury to set up a steering group to study the development of a financial technology industry here.
“We’re impressed with how regulators are looking to understand and share global best practices on how fintech can transform regulation standards and compliance,” says Taras Chaban, chief executive of Sybenetix, another of the lab’s participants.
London-based Sybenetix delivers behavioural analytics to help hedge funds, asset managers and banks transform performance and trading behaviour.
But the banks could do more to help themselves, according to Australian entrepreneur Colin Weir. His company, Moroku, hopes to make banking “fun” through gamification. Weir says his company has struggled to raise debt or equity investment, in part because of regulatory issues but also because of the culture of banking.
“The banks’ foundations are built upon being slow to move, being considered and thinking things through. This is why it’s very difficult to establish an innovation culture or ‘hub’ within a bank,” he says.
At the HKIB Annual Banking Conference, Leung is optimistic that some of these new ideas will filter down to bankers.
“They have to live up to the new technologies called fintech, from the smallest mobile payment all the way to the bigger things like cryptocurrencies such as Bitcoin.”