How SMEs can take advantage of HK’s digital financial system

Kevin Fitzgerald October 21, 2021 10:26

In June 2021, the Hong Kong Monetary Authority (HKMA) announced the Fintech 2025 initiative to encourage the financial sector to adopt technology comprehensively by 2025. This governmental push is set to revolutionise the Hong Kong fintech scene, changing the way consumers and businesses conduct commerce. By accelerating their own digital transformation, SMEs can take advantage of the Fintech 2025 initiatives. In particular, open banking, the Commercial Data Interchange (CDI), and the strengthening of a cross-border payment infrastructure are key areas that SMEs should focus on in order to reap the most benefits.

Open banking: Personalised and diversified banking

Under the Fintech 2025 initiative, banks will need to fully digitise their operations. Digitisation will stimulate open banking, which is a collaborative ecosystem between traditional banks and non-banking partners, like HSBC and Xero. Through open banking, SMEs will have greater control of how they manage and use their financial data to streamline operational processes.

For example, SMEs can use cloud accounting tools to connect with banks and financial institutions for seamless bank reconciliation. This reconciliation keeps bookkeeping accurate and can help SMEs lower their tax, alert them to fraud, and track costs by ensuring that all transactions are matched and accounted for.

A global McKinsey report revealed that SMEs spend up to 74% of their time on non-core business activities, of which, banking is a primary one. With bank feeds directly processed in the accounting system, SMEs can readily access data to gain greater insight into their cash flow -- with a real-time visibility over revenue and costs -- to make better, data-driven business decisions.

CDI: Unlock the potential of data

SMEs will also benefit from HKMA’s plans to enhance the city’s existing data infrastructure. By establishing the CDI, data owners like consumers and businesses will be able to share their data with banks via service providers like fintechs, utilities or payment gateways through a single platform.

With the CDI, banks will gain access to a substantial body of data, including merchant point-of-sale information to forecast a business’ future cash flow and identify cash flow patterns. This makes it easier for banks to disburse loans without having to ask for collateral. HKMA’s chief executive Eddie Yue announced that the CDI will enable bank customers, especially SMEs, to use their own data to enhance access to financial services and capital.

For instance, HSBC, the largest bank in Hong Kong, and HKTVmall, a shopping and entertainment platform, partnered up as participants of the CDI project. HKTVmall will provide merchant data, including turnover and refund records of different types of goods, and HSBC will analyse and forecast merchants’ business performance, making it easier for HKTVmall’s merchants to access digital trade finance. Merchants that outperform projected sales can also begin to improve their credit standing through the CDI.

e-CNY: Pave the way to go global

As cross-border ecommerce continues to grow, local SMEs will also have more opportunities to pursue mainland business with the upcoming digital yuan (e-CNY) pilot. Spearheaded by People’s Bank of China (PBOC) and supported by HKMA, the digital yuan will help Hong Kong SMEs tap into regional markets by processing cross-border payments more seamlessly, with a single mode of payment and currency. Efficient cross-border payment processes will become increasingly important for consumers and businesses, as cross-border spending is high and a key element of Hong Kong e-commerce, taking 70% of the overall e-commerce market.

Supporting e-CNY will also support widespread adoption of digital payments, allowing users of six major state-owned banks, including the Industrial and Commercial Bank of China and the Bank of China, to make payments on one single app. A more streamlined payment process means SMEs don’t need to depend on multiple payment apps, including Alipay or WeChat Pay, when selling their goods and services. Unlike existing payment methods, e-CNY has no registration and commission fees, making it a compelling choice for SMEs to adopt digital payment methods at low costs.

To ride the fintech revolution, SMEs must leverage these digitisation initiatives

The fintech revolution is here. The Hong Kong government is eager to elevate its digital economy with the Fintech 2025 initiative, and SMEs should consider how to seize the initiative’s policies to reach the next level of their digital transformation journeys.

Traditional financial workflows like payments or accounting can and should be digitised by cloud solutions. SMEs can save time by digitising these processes, and focus on delivering greater strategic value to the business and their customers.

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Kevin Fitzgerald

Asia Managing Director at Xero