COVID-19 to turbocharge HK’s fintech revolution

November 02, 2020 10:56
Despite its disruption to various businesses, the COVID-19 pandemic has the potential to turbocharge Hong Kong's digital businesses and fintech sector. Photo: Reuters.

All over the world, the COVID-19 health pandemic has caused unforeseen disruption to industry and business. From the financial sector and logistics companies to manufacturing and the service economy—every sector has been disrupted by the current crisis and the measures enacted by authorities to combat the spread of COVID-19. As the timeline of the pandemic seems to elongate indeterminately—with a vaccine more than a year from global rollout, firms are beginning to look beyond the immediate short term and their response to the pandemic, and are beginning to look at how they can recover lost ground in the long term.

As enterprises adjust to new realities of a socially distanced world—digital businesses are reaping the benefits, not least of all the fintech sector. With work from home and decentralised workforces serving as the new normal, it is clear that a new social and economic contract between business, service providers, and society has emerged.

This has led to the creation of new opportunities for technology-driven firms, and Hong Kong has the potential to lead in this new revolution of business. Home to numerous fintechs and digital-first firms, the COVID-19 pandemic has the potential to turbocharge Hong Kong’s fintech sector.

The rise of digital business

As businesses are disrupted, 2020 has revealed the weaknesses in traditional operating models—and now trust, traceability, speed and agility will become defining traits in successful enterprise. What we are likely to see from market winners are technological solutions that will facilitate services which are adaptable, safe, secure and open source.

We are already seeing reorientations of business models as everything from commerce to events move online and major corporations are forced to reengineer supply chains, eco-systems, processes, products, and technology strategies to meet the requirements of a new global market.

The financial sector has not been spared the calls for increased modernisation and digitisation brought on by the coronavirus. Like every other industry, the current pandemic has brought into sharp relief the need for greater technological deployment within the financial sector. Mobile banking, online support, and digital transactions—including digital payments and transfers have become more relevant than ever before. This goes beyond the consumer marketplace to include the B2B space as well, as even procurement processes and contracts are being increasingly brought online.

As things change, and companies find less resistance than many expected in overhauling their processes—we are likely to see a significant boom in the fintech and enterprise tech spaces. While previously, many companies viewed digitisation as a luxury which they could not afford—it is now seen as a necessity for survival. COVID-19 has therefore forced the hands of many companies and financial service providers to overhaul their systems and meet evolving consumer demands for more comprehensive digital services.

The ramifications this has had at home in Hong Kong has not escaped political or business decision makers based here. Recently, Head of fintech of Invest Hong Kong, the government unit responsible for fostering the growth of the fintech ecosystem in Hong Kong, stated that: “The pandemic is helping to accelerate the adoption of our digital channels, and a lot of the more tech-oriented user experience” and that city is likely to see substantial growth in use of financial technology as companies and consumers adopt digital payment methods in the coming months.

Hong Kong’s role as a regional fintech hub

A longtime regional and international financial hub, Hong Kong is especially well-placed to take advantage of the opportunities presented by COVID-19 and the rise of digital services. With substantial financial infrastructure, built off the back of a colossal financial market which has served as a longtime link between East and West, the state has built up a considerable resilience to the changing fate of the global economy. Combined with sound technological infrastructures and connectivity, as well as a high concentration of capital and talent, Hong Kong is well positioned to emerge from COVID-19 as an international leader in the “new normal”, especially where financial services are concerned.

Speaking of the local and domestic market, Invest Hong Kong have also suggested that as Hong Kong is part of the “Greater Bay Area”, which includes Guangdong-Hong Kong-Macau, there is an addressable market of some 71 million for homegrown fintech applications and businesses—leaving considerable room for growth. One area of growth highlighted in the Greater Bay Area plan is Hong Kong’s insurance sector, which has surprisingly seen market growth amidst the global pandemic. In fact, insurance giants like AIA and Prudential have increased their hiring due to the surging demand for insurance protection. Not known to many, the insurance industry in Hong Kong is undergoing rapid digital transformation, with organisations like the Hong Kong Federation of Insurers (HKFI) adopting new technologies such as blockchain to reduce fraud, streamline processes and minimise additional third party costs.

Government authorities in Hong Kong have shown substantial support for transformative technologies in the form of government-backed real-time mobile payment platforms and virtual banking licences—enabling a positive climate for further growth in the fintech space. Working with commercial banks, Hong Kong Monetary Authority (HKMA) and Bank of Thailand (BOT) develop Project Inthanon-LionRock, which aims to explore potential benefits of the Distributed Ledger Technology (DLT) in enhancing Thailand's financial infrastructure.

Next month, Hong Kong Fintech Week will incorporate the “Global Fast Track 2020” programme, which will see international fintech companies apply for funding from the Hong Kong authorities to stimulate regional expansion. As a part of its plans for economic development, the Hong Kong government is reported to have set aside US$49 billion to support fintech companies under several government schemes, with an aim to draw promising businesses to the country's shores.

Maintaining momentum

The stage is set for Hong to emerge as a dominant force in the global “new normal”—and to serve as home to regional and international fintech businesses and digital first firms. What is left to determine is whether local entrepreneurs and businesses take advantage of this substantial opportunity to incorporate new technologies into their business models to effectively and meaningfully adapt their services to a decentralised and wholly changed world—catering to new requirements from corporate clients and consumers.

While COVID-19 has presented many challenges, it presents along with them opportunities for growth, education, and to establish new centres of resilience and success. Hong Kong, I believe, could be one of them.

-- Contact us at [email protected]

Head of Asia Pacific at R3