How Hong Kong Became an International Hub for Rising Fintech Startups

In 2015, Scott Thiel, Partner at DLA Piper said that “[...] the increasing adoption of alternative payment solutions demonstrate how Hong Kong’s high mobile penetration and connectivity is providing an ideal FinTech consumer base.”

And the last year’s statistics support his statement. Namely, in 2016, there were around 2000 startups in Hong Kong, and in just a year this number managed to increase by as much as 16%, and financial technologies found themselves among the top 4 areas of strength for development. Last year, the Shenzen-Hong Kong tech cluster ranked the second largest innovation and technology sector in the world.

Fintech, in particular, has experienced exponential growth according to the latest StartmeupHK survey. Fintech represents the application of IT to the provision of financial services and has the largest number of startups - astonishing 427 (for the sake of comparison, eCommerce came in second with 286).

What is more, 48 out of 100 global Fintech companies are Hong Kong-based, and their focus has been on improving financial services sectors, including cybersecurity, foreign exchange, wealth management, eCommerce, and robotic advisory.

So what makes Hong Kong area such fertile ground for Fintech development?


Investments and education

Hong Kong startup market has enjoyed a reliable backing from the government and private investors who believed in the city’s potential.

The initiative to support universities was launched in 2014 by the Innovation and Technology Commission (ITC), encouraging technology startups with a $24 million funding. Six universities were granted $4 million per year, and all students, alumni, or staff whose studies focused on knowledge and technology were eligible to apply.

Today, Hong Kong universities provide ambitious IT students with a well-equipped learning ecosystem. All educational institutions occupy respectable positions in the Times Higher Education Ranking and QS University Ranking, especially for its science and engineering departments. For years, Hong Kong has been grooming its students to become leading experts in research and development and has supported their startup ideas, some of which managed to acquire unicorn status.

Furthermore, we’ve seen a growing number of incubators and accelerator programmes intended to promote startups emerging from Hong Kong Science Park and Cyberport. And the two innovation hubs continue to expand to provide an inspiring environment for talented minds who need a gathering spot to exchange ideas and further their research and development skills. The city spurred dozens of co-working places for both smaller and greater startup teams. Now talented young minds have an abundance of gathering places to focus and exchange ideas in a more proactive way than they would remotely. Yes, some of the greatest enterprises and magnates started in their garages, basements, or student dormitories, but a dedicated workspace is surely going to accelerate the growth of a modern startup.  

In 2016, the government provided a $2 billion investment to support innovation and technology startups that had private venture capital on a matching basis. And for the 2018/19 budget, the Hong Kong government identified several areas of strength for development, with Fintech being among them.


(Foreign) talent

Consequently, the city became the home to many talented minds who realise the benefits Hong Kong has to offer. They had the chance to experience high-class college education and collect the knowledge they need to expand their horizons. Their innovative ideas were supported with funding - they were given the tools and space to develop their creative visions. Upon finishing their studies, graduates were again provided with the co-working environments and financial backing to further work on their ideas and contribute to the city’s (and the world’s) technological advancement.

In addition, foreign companies are becoming aware of Hong Kong’s potential. Particularly U.S. companies are looking for new soil to establish their operations and offer work opportunities to the Chinese market. Reports indicate that there are over 500,000 unfilled jobs in IT across all sectors of the U.S. economy, mostly because of the visa policy that sends students home after their undergraduate or graduate studies. The demand for a talented workforce with PhDs in computer science, mathematics, and physics is global, and Hong Kong has some of the best people to offer. 


Infrastructure and geographical location

Out of 126 surveyed economies, Hong Kong ranked first in infrastructure in the Global Innovation Index 2018. Additionally, it is located in the Greater Bay Area, which continual expansion enables every city in the area to enjoy a steady and coordinated economic growth.

Hong Kong also benefits from the proximity to Shenzhen, internationally known as the “Silicon Valley of China”. Namely, in January 2017, the two announced an agreement to develop Lok Ma Chau Loop, an 85-hectares large technology park intended to promote technological flourishing.

The city is also a mere 5-hour flight away from China and India which are home to half of the world's population.

Not only that - startups profit from relatively low taxation, as well as the vicinity to a network of highly sophisticated and globally connected financial services. Hong Kong will continue to capitalise on its research and development capabilities, the legal system, and technological infrastructure.

Although Hong Kong enjoys benefits from a premium geographical position, the city contributes to the area as much as it benefits from it. In fact, out of all the cities in this region, Hong Kong stands out as an important international financial and trade centre, providing support for regional development. 


Progressive and revolutionary thinking

In order for a city to contribute to global development, the revolution has to start from within - which is the case with Hong Kong.

Let’s take the Hong Kong Monetary Authority’s innovative trade finance platform. Following the rising popularity of blockchain technologies, HKMA revealed the platform which utilises distributed ledger technology to minimise the risk of fraudulent activities. At the same time, the platform improves business operational efficiency, transparency and productivity in trade finance, all which was expected from one of the world’s most important financial capitals. As a result, Hong Kong contributed to international trade, digitalising it and making it more streamlined and cost-effective.


The changing face of the Hong Kong financial sector

Fintech has dramatically altered the modern day’s financial services delivery model. Furthermore, consumers’ preferences have changed on a global scale, and the need for modern financial solutions is growing. The fact is that consumers demand financial services that will respond to their daily requirements. Some of the needs addressed in recent years include:

  • Payments which are made more practical and secure. The use of cash payments is decreasing, while credit cards are gaining momentum as the more preferable payment method. Mobile payments, too, are growing in popularity, especially among the younger entrepreneurial generation, which will slowly overtake the business world.
  • Security has been largely emphasised after the FPS & eDDA issue. Rising banking solutions focus on providing an additional layer of protection for the card and electronic payments.
  • International transactions are improved to enable better overseas business operations. Hong Kong is renewed for its low tolerance for corruption, quality legal framework, and is praised for being one of the globally important banking and financial centres. As such, it managed to attract major world business players and requires effective and secure financial solutions for international transactions, in multiple currencies.
  • The digitalisation of the banking system should meet modern consumers’ demands, but also benefit the future expansion of financial services. Aside from getting the 24/7 access to the bank without having to visit a physical office, the costs of running a bank will minimise and funds saved will be reinvested in further Fintech development.
  • AI, Big Data, and Robo-advisory are enjoying a much greater potential, not just as the tools used to increase Hong Kong’s competitiveness but also to impact insurance and banking.
  • Analytics is used to determine behavioural patterns to mitigate risk and investment management, improve customer retention and acquisition, credit scoring, etc. Ultimately, analytics is expected to broaden and refine financial service offering. 


Final thoughts: Challenges Hong Kong needs to overcome

Without a doubt, Hong Kong is an international finance hub and technologically advanced logistics and communication centre. For years now it has been a home to local and international Fintech startups due to a multitude of benefits and advantages it offers to aspiring and innovative entrepreneurs, including its geographical position, private and government financial support, talented workforce, and many more. Still, even as one of the fastest growing tech ecosystems, there are challenges which keep some foreign investors at bay, questioning whether or not taking their visions across the Chinese borders will be a smart business decision. 

Currently, high costs of living are one of the main reasons why entrepreneurs are still questioning whether or not establishing a business in Hong Kong is profitable. Starting up brings about a number of challenges and costs as it is, the last thing you need in your budget plan is high rent. And this does not just present the barrier for the locals - international investors, as well, were known to back up after recalculation and risk mitigation.

Furthermore, the Hong Kong banking system is quite complex, and foreign investors are unwilling to deal with extensive paperwork and account-opening procedures. Fortunately, with solutions such as Debit Mastercard solution which is not linked to a bank account, the tiresome and lengthy process can easily be evaded.

Want to find out more about the benefits of Unicard Mastercard Prepaid card? Check out our website and see how you can handle international trade in 15 currencies without having to bother with the Hong Kong banking system.






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