The scale-up factor: Hong Kong’s fintech advantage in the post-pandemic world

The COVID-19 pandemic has forced lockdowns and impacted economies globally. As we recover from the pandemic, the focus for international finance hubs is resilience and recovery.

One of the most important success factors for fintech companies in the post-pandemic era is the ability to scale. From funding, to product development to distribution and market opportunity – these scale-up factors are critical for sustained fintech success. In Asia, the opportunity to deliver financial services to massive populations through digital channels is huge, but how to scale-up for this is the challenge?

Hong Kong’s continued fast-growing fintech adoption

When we think of this year in Hong Kong, we should not interpret the pandemic as the catalyst for this current wave of digital transformation in the city. It was already well under way.

Hong Kong pioneered one of the world’s first smart contactless payment systems, the Octopus card. It is home to contactless and QR code payments, and one of the markets advancing China’s Central Bank Digital Currency pilot. Yet the sophistication of the city’s smart banking system, high penetration and adoption of fintech often escapes the notice of the average critic.

The city was already taking steps to boost competition across mainstream applications, not least leading Asia through a revolution in virtual banking. Positioned on the doorstep of Mainland China and Southeast Asia, for many years, Hong Kong has been the launchpad for fintech companies seeking to innovate and reach the region’s one-billion-plus unbanked.

The recalibration of Hong Kong towards this market opportunity is happening very fast. For example, the Fintech Anti-Epidemic Scheme for Talent Development (FAST), a subsidy plan of US$15.5 million, has been launched to enrich Hong Kong’s talent pool. The recently announced Fintech Proof-of-Concept Subsidy Scheme also sets to encourage traditional financial institutions to work with fintech companies to develop proof of concept fintech projects.

Accelerated FinTech adoption prior to COVID-19

We are at the beginning of a long recovery process, but businesses are confident they will emerge with the ability to scale-up, access strong talent, capital, and the infrastructure they need to remain relevant and competitive in the future.

Since the outbreak, consumers, banks, and insurers have been working hard to innovate. Mobile services like HSBC’s PayMe and the city-wide Faster Payment System are just a few examples of broad-based adoption that have been making an impact. In many ways, this positive attitude to experimentation is in the DNA of Hong Kong, which has spurred both local and international fintech players in the city to take advantage of Asia’s abundant fintech opportunities.

This applies to all areas of financial services. A recent study by the Hong Kong Monetary Authority released in 2020 found that 86 per cent of incumbent banks are progressively integrating fintech applications across all types of financial services, and all incumbent banks intend to introduce one or more fintech applications to their business in the next five years.

When it comes to funding, one area unique to the city is its density of family offices, which according to the 2020 policy address has seen recent growth. To foster development, a dedicated team was set-up at Invest Hong Kong to offer one-stop support service to family offices interested in establishing in the city. In turn, this initiative will help further expand Hong Kong’s private capital funding pool – and thus, driving even more funding into the fintech ecosystem.

Companies, regulators, and the government alike are making the most of Hong Kong’s unique position to scale up on the mainland, in the Greater Bay Area in particular, and in Southeast Asia – the largest, most dynamic fintech markets in the world. Considering the uncertainty faced by most economies, this enormous upside presents a once-in-a-generation opportunity.

Right place, right time

Fintech companies in Asia are in the right place, at the right time. Despite the headwinds, in 2020, Hong Kong, Mainland China and Asia’s emerging economies are the outliers in the International Monetary Fund’s largely negative growth forecast for the next two years. Looking ahead, Asia is poised to lead.

In the post-pandemic world, a world-class regulatory regime, a strong capital market and the capability to turn start-ups into scale-ups, are the key ingredients that define a successful and resilient fintech hub. If any city has the required set of capabilities to benefit from a post-pandemic opportunity, Hong Kong’s fintech sector is primed for this moment.