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Hong Kong’s financial industry in a time of recession
As in most markets, Hong Kong is seeing its financial services industry disrupted by financial technology. Throughout Asia, there has been a marked uptake of technology utilisation, including blockchain, artificial intelligence, as well as cloud technology in financial institutions. Since Hong Kong is considered a major financial sector in Asia Pacific and has the second highest number of international business headquarters in the region, financial services and fintech trends will likely be led from this city.
Earlier this year, the Hong Kong Monetary Authority granted eight new digital-only upstarts with virtual banking licenses. Its operators then said they would likely launch new digital-only banks before or in early 2020. However, latest media reports say these banks are now delaying their plans in part due to the ongoing protests in the city. The financial arms of Greater China’s tech giants, including Xiaomi, Ant Financial, Tencent, and JD.com, were among those granted virtual banking licenses.
Digital-only banks are also developing in other parts of Asia, including India, South Korea and Singapore, which will no doubt change the landscape of banking and financial services.
Healthy investments and consumer expectations
Growth in the fintech markets has also been fuelled by investments by Mainland China into the Greater Bay Area, which includes Hong Kong, and the Belt & Road Initiative. Ginger Cheng, China Lead of Large- and Mid-Capital Corporates at DBS Bank, noted the Greater Bay Area as the most market-driven area in Greater China, and she said Hong Kong’s role could be to “provide the financial products and services needed by companies in the region to further advance themselves”.
However, she did throw caution as well, saying that Mainland China is ahead in innovating financial services. She said many financial tech firms in nearby Shenzhen were already offering traditional banking products in an “entirely different and more automated way”.
The consumer market in Hong Kong has been polled as being ready for more innovation and the digitalisation of financial services. According to a survey done by Forrester Research, some 78% of consumers indicated they would prefer to engage with their retail banking and life insurance providers on digital channels.
However, Hong Kong consumers still appeared conservative in their acceptance of digital-only financial service providers, perhaps needing more assurances of their stability and reliability. In that same survey, only 18% said they would consider switching to digital-only financial service providers in the next two years. This is among the lowest in the region.
What could potentially help drive that number up is an improved regulatory infrastructure around new technology to give consumers confidence in the industry. According to Geoswift CEO Raymond Qu, the top trend impacting the BFSI (Banking, Financial Services, Insurance) industries is regulation catching up with innovation.
“With the emergence of a rising number of fintech technologies, the regulatory landscape is continually changing and BFSI organisations will continue to invest vast resources to stay on top of evolving rules and policies. We are seeing a growing divergence in global regulatory standards. Regulators are increasingly aware of the need to protect the integrity of the local BFSI market while ensuring they remain competitive (globally),” said Qu.
A study titled Transforming Hong Kong through Entrepreneurship by KPMG China and Alibaba Hong Kong Entrepreneurs Fund reported fintech as Hong Kong’s strongest innovation sector; 67% of entrepreneurs and 61% of students interviewed for the study agree Hong Kong is well-positioned as a fintech innovation hub, and 48% of entrepreneurs felt Hong Kong is ripe for smart-city innovations.
A reputation under threat
Despite the general optimism surrounding the financial services sector, there are larger economic factors to be taken into consideration as well. The biggest one being the fact that Carrie Lam, Hong Kong’s leader, announced in late October 2019 that Hong Kong was officially in a technical recession. As a result, analysts are watching the developments in China closely. With the current tensions between Hong Kong as a Special Administrative Region and Mainland China, there are no doubt legitimate anxiety and concerns.
Beijing recently unveiled detailed plans for wide-ranging reforms to be implemented in Shenzhen, including in legal, financial, medical and social sectors, according to a CCTV report. Under the plan, Shenzhen is expected to become a model of “high-quality development” and looks to be set up as an example of “law and order and civilisation, as well as societal satisfaction and sustainability”. The report said Mainland China aims to make Shenzhen competitive in the world in terms of comprehensive economic abilities by 2035.
Analysts say these developments and goals could point towards a policy shift in Beijing away from Hong Kong and towards mainland cities to drive the region’s development.
With more than 40 years of experience and 140 offices globally, PageGroup has one of the most comprehensive networks of employers and candidates in the financial services industry. This article is part of our Market Movers series, which attempts to highlight various industry segments across specific markets.
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