HK fintech startups need partnerships to thrive: Emil Chan

February 02, 2018 12:20
After tasting success at home, China's Alipay and WeChat Pay are seeking to make inroads into the Hong Kong mobile payment market. Photo: Reuters

As dominant operators in China such as Alipay and WeChat Pay gear up to penetrate the lucrative Hong Kong mobile payment market, the scope of mobile payments, as well as fintech industry in general, in the city is set to reach a whole new level.

While the tech giants are ramping up adoption of their digital wallet and mobile payments services, as a conduit for massive and valuable consumer data, which can open the door for an expanding array of services, what would be the impact on the market and the local consumers? What can the local fintech startups do to compete with the giants in the industry?

To discuss these and related issues, the Hong Kong Economic Journal recently sought the views of Emil Chan Ka-ho, who chairs the FinTech Committee of the Smart City Consortium, an entity that seeks to advise the government on smart-city policy formulation.

Here are excerpts from an interview:

HKEJ: In your recent published article, you mentioned that Hong Kong seems to be lagging behind in innovations in the finance sector, such as on the credit checking system which is an important part in fintech. Can you elaborate further on this?

A: Fintech innovation in Hong Kong has been very slow over the years, such as in mobile payment field. We have local operators including TNG Wallet, Tap&Go by PCCW's HKT, and Octopus & O! ePay run by Octopus Cards, but they have not established a well-connected network between banks, merchants and customers yet.

Then we have Chinese giants Alipay and WeChat Pay, which after swift development of mobile payment solutions in the mainland are expanding to Hong Kong. We can see that Chinese mobile payment market adoption is becoming mature; they have already moved forward to credit checking, another field in the financial sector.

Q: To develop a credit rating system, do the operators need to gather more user data in order to enhance the accuracy of the assessment?

A: With the new credit rating system, this is how it works: You offer your personal life history, as well as your consumption history, to the credit service company, which will use your information to assess and establish your credit profile. Based on your credit rating, the banks or financial institutions will determine the interest rate and other terms of your loan.

Some people think that is a type of privacy invasion, but every consumer has the right to choose whether to accept it or not. You can't have it both ways: you can't say, 'I want the lower interest rate offers but I don't want to give up my privacy'. And one point should be noted: many believe China invented the social credit rating system, but the fact is it originated from the U.S.

Q: A report from PwC last year showed fintech companies in Hong Kong tend to form partnerships with incumbent financial institutions, instead of challenging the market dominance of existing leaders. What is your thought on this?

A: In Hong Kong, major banks and financial institutions are owned by Chinese and foreign capital, which means local players do not have the power to lead the industry transformation.

Besides, there are only a few millions of people in Hong Kong market, too small for any fintech startup to thrive. Even if a firm succeeds in the city, it is not easy for it to export the model to cities in Mainland China and other cities in the region, due to the uniqueness of Hong Kong market.

And you risk becoming illegal if the new service you provide appears to run counter to existing law and regulations.

Given these barriers, many of the fintech startups are likely to look for partnerships rather than try to disrupt the market alone. With the startups being squeezed into a highly limited space for development, fintech innovations are undoubtedly constrained.

This article appeared in the Hong Kong Economic Journal on Feb 2

Translation by Ben Ng

[Chinese version 中文版]

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Hong Kong Economic Journal