As the rise of financial technology is being touted as a game-changer for the world’s financial industry, many cities are aspiring to become global FinTech hubs.
Hong Kong is no exception.
In March, the government announced the establishment of a steering group on FinTech. The group’s task is to advise the administration on ways to sharpen the city’s edge and help it evolve into a world FinTech hub.
The term “financial technology”, or FinTech, has been coined to describe how new technologies have transformed the financial industry.
For instance, Hong Kong’s first peer-to-peer (P2P) online lending platform WeLend allows individuals to apply for loans without going through a bank. This year the platform secured a total of US$20 million in Series A funding and expanded rapidly into the China market.
While global investment on FinTech has increased threefold from US$930 million in 2008 to over US$2.97 billion 2013, 83 percent of the investment in 2013 was in US-based ventures, according to consultancy firm Accenture.
Then the question arises as to whether Hong Kong has all the conditions in place for the global FinTech innovation race.
Stefan Bruun, managing partner of Hong Kong-headquartered Nova Founders Capital, has pointed to significant progress in the matching of investors and entrepreneurs in the FinTech arena.
“Over the past years, the matching of investors and entrepreneurs has improved a lot. It is much easier today to get in touch with angel investors than it was a few years back,” he said.
Last year, Nova Founders Capital raised US$50 million from the Pacific Century Group. The fund will be used to back, build and acquire high-growth FinTech startups.
Yet, Bruun said the community has overemphasized the investment side of Hong Kong while overlooking the FinTech companies themselves.
“People often talk about the investment side in Hong Kong, but the real focus should be on growing the companies that are already here. Only few companies have managed to take the step from small startup to a larger player while maintaining their growth,” he said.
Dr. Mak Wai-ming, MBA program director at Hong Kong Polytechnic University, pointed out that a risk-averse business culture and bureaucracy may prevent financial institutions in Hong Kong from being innovative.
“Innovation within an organization is a two-way street. While you need talent with tech background and entrepreneurial flair, you also need to cultivate an organization culture that favors intrapreneurship, so that new ideas will be turned into innovations,” he noted.
However, Janos Barberis, founder of a newly launched online platform FinTech HK, argued that the situation has been gradually improving.
He noted that banks are increasingly setting up accelerator programs to understand innovation.
DBS Bank, for example, has partnered with incubator Nest and launched a FinTech Accelerator program in Hong Kong.
The FinTech Innovation Lab Asia-Pacific accelerator program by Accenture also kicked off at Cyberport last year. Currently the program collaborates with 12 partner banks.
Barberis cited Goldman Sachs’ estimation of a total of US$4 trillion banking revenue coming under the threat of new players including FinTech startups. As such, he believes there is a real need for banks to be able to adapt and integrate new players either by acquisition or joint ventures.
Asked if Hong Kong is in a good position to get ahead in the global FinTech innovation race, Nova’s Bruun challenged the “zero-sum” game assumption.
As he put it: “I don’t think it’s ‘winner takes it all’. In the US, many new cities have turned into startup hubs. They are just not all as famous and large as Silicon Valley.”
A smaller market can still give an edge, FinTech HK’s Barberis said, and he thinks collaboration is a key.
“Hong Kong should look at making links with other emerging hubs, including Korea, Switzerland and Tel-Aviv. These hubs are interesting because they are also smaller in terms of market size but have expertise in certain niches (e.g. wealth management in Switzerland) that could complement Hong Kong offerings,” he said.
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