Frontier Tech is Set to Transform Global Finance

Today, the world is changing geopolitically, economically and technologically – we are witnessing an evolving global nexus. Experts have taken note of engines of growth in Asia, a region predicted to fuel two-thirds of global economic growth in the coming years. Markets like the Middle East and ASEAN have received particular attention recently due to emerging trends in financial investments and nearshoring. Global paradigms are shifting before our eyes, with emerging and frontier technology taking the forefront in driving these changes.

Fintech, in particular, plays a vital role in this change, and there is a clear opportunity to capitalise, such as new trade corridors with the majority of the global nations. However, for those who have yet to tackle fintech and other frontier tech head-on, this transition period might prove to be complex and unpredictable. Hong Kong is in a unique position to embrace and develop Frontier Tech, according to the UN’s Global Frontier Technology Index. This year’s Hong Kong FinTech Week, “Illuminating New Pathways in FinTech” will also shed light on where the opportunities lie during this generational change, as emerging technologies are poised to drive multi-lateral trade, transform financial services, and contribute to our real economy.

The future of financial services

Frontier technologies are also becoming increasingly multi-lateral, with innovation being driven by a variety of different markets. Emerging innovation out of Asia is attracting more investors as they hone in on creating sector-specific solutions. Financial services and banking are two areas where we are seeing increased innovation as frontier tech changes the way we approach finance.

Tokenisation, for instance, is enabling fractional ownership and enhancing liquidity in traditional finance. One recent case study comes from the Hong Kong Monetary Authority (HKMA)’s focus on developing tokenised currency systems. These digitalised systems can facilitate cross-border transactions, bring about more financial inclusion, and allow companies to engage in wider inter-industry settlements.

Earlier in the summer, the HKMA announced the kickoff of Project Ensemble to support the development of the tokenisation market in Hong Kong. The movement towards increased digitalisation will not only open up pathways for added revenue creation but also side-step common issues like fraud and other cyber threats. With rising interconnectedness between traditional financial systems and the virtual asset market, the HKSAR Government is also looking to introduce a regulatory regime for fiat-referenced stablecoin issuers, with three stablecoin issuer sandbox participants having been announced so far.

Intelligent banking and other financial services solutions also rely on frontier tech to help in risk management by leveraging data scrapping and predictive analytics that free up knowledge workers’ time for more pressing issues. Beijing-based enterprise AI firm 4Paradigm that was listed on HKEX in 2023, for instance, focuses on creating industry-specific AI solutions to combat operational inefficiencies and promote digitalisation. By leveraging AI technologies, they create intelligent banking solutions to specifically tackle fraud and money laundering in the finance sector.

Creating tangible impact

 Alongside frontier tech developments in financial services, we have also seen advancements when it comes to green technology. These bring sustainability and climate mitigation into focus as Hong Kong looks to move forward not just as a finance hub but also as a greener, smarter city. Over the past decade, Hong Kong has been dialed into ESG reporting metrics and best practices, with the HKSAR Government issuing a vision statement in March on developing the sustainability disclosure ecosystem in Hong Kong. It aims for Hong Kong to be among the first jurisdictions to align local sustainability disclosure requirements with International Financial Reporting Standards – Sustainability Disclosure Standards. We have also issued the most GSS+ green bonds overall in Asia, valued at USD 80 billion, second only to the Mainland and making up a third of all green bonds in Asia. Our digital green bonds were also the first multicurrency digitally native bond issued by a government around the world, furthering Hong Kong’s sustainable development and green transformation.

Frontier technology can break down trade barriers, directly addressing common challenges in modern trade including supply chain inefficiencies and long wait times. For example, blockchain has been touted as the future of trade financing. Some companies like Ant Group have leveraged the technology to help major sectors, such as the shipping industry, begin the shift towards paperless operations with digital versions of complex legal documents known as Bills of Lading. By employing tokenised electronic Bills of Lading (eBLs), as the new technology is called, the trading world will see an uptick in efficiency for businesses engaging in cross-border deals. The technology also holds great potential in establishing higher levels of trust and credibility among consumers and partners, as transparency and the traceability of supply chains are prioritised. According to the World Trade Organisation (WTO), the integration of blockchain technology in trade can result in more than USD 1 trillion of new trade by 2030 and help the financial sector and shipping industry save 15 – 30% of their total costs.

Hong Kong: The Springboard to the World

Frontier tech companies can contribute a variety of tangible economic returns. Predictions by the United Nations Conference on Trade and Development (UNCTAD) showcase frontier technologies growing to a total market value of USD 9.5 trillion by 2030. As frontier tech companies expand and sectors grow, the creation of new jobs around the world will be inevitable.

Specific technologies, like AI, have been predicted to generate hundreds of billions of savings and contribute to overall economic growth in the APAC region. As multi-lateral trade is further streamlined through the use of frontier tech, Hong Kong, as an international trade hub, can expect to see increased revenue and foreign investment as more companies approach the city as a gateway to the Greater Bay Area and the rest of Asia. WeBank has already expanded to Hong Kong with the plan of broadening their solutions regionally and beyond. By headquartering its technology company in the city, it plans to invest USD 150 million and create high-skilled technology jobs.