18 October 2023
A Diverse, Resilient, and Dynamic International FinTech Hub
Hong Kong is an international FinTech hub characterised by a diverse, resilient, and dynamic landscape. Although a relatively small city, it punches above its weight as one of the most productive markets for FinTech start-ups to rapidly scale-up. Throughout the COVID-19 pandemic, the Hong Kong FinTech sector bucked the global trend as companies continued to grow, raise capital and hire.
– Home to over 800 fintech companies and over 3,900 start-ups, Hong Kong is one of the top cities globally for start-ups to rapidly scale-up. It is home to over 10 unicorn companies (start-ups valued over US$1bn). Examples of Hong Kong’s FinTech unicorns include ZA International, which was granted a HK virtual bank license in March 2019 via its subsidiary ZA Bank Limited, WeLab, an online financial company, Airwallex, a cross-border payment service provider and more. The city ranks first in Asia Pacific and nineth worldwide in The Global Fintech Index 2021.
– Hong Kong has leaped from 15th in 2021 to nineth in the 2023 Frontier Technologies Readiness Index by United Nations Conference on Trade and Development. 74% of Hong Kong respondents use at least two fintech services and over 90% have adopted digital payment, according to PolyU Asklora Fintech Adoption Index in April 2023. The adoptions of Virtual Wealth, Virtual Bank, and Virtual Insurance were at 57%, 55%, and 41%, respectively. The city also has a high B2B adoption rate of FinTech and also serves as a platform for entering into mainland China, the world’s top consumer market for FinTech. According to HSBC, 37% of their international survey respondents see Hong Kong as the preferred entry point into the GBA.
– 2022 Annual Startup Survey conducted by InvestHK showed that Hong Kong’s start-up scene remained vibrant, with the number of start-ups increasing by 52 per cent from 2018 to 3,985. This spans across different business sectors, such as financial technology.
– According the results of a joint survey by Invest Hong Kong and the Census and Statistics Department (C&SD), the number of business operations in Hong Kong with parent companies located outside Hong Kong was 8,978 in 2022. In terms of source country/territory, Mainland China ranked the first with 2,114 companies, followed by Japan (1,388), the United States (1,258), the United Kingdom (655) and Singapore (463). By sector, import/export trade, wholesale and retail topped the list (4,170), followed by financing and banking (1,683), and professional, business and education services (1,308).
– In 2022, Hong Kong ranked first in Asia Pacific and Top 5 globally in The Smart Centres Index, which explores the ability of global commercial centres to create, develop, and deploy technology. The city ranks fourth in the latest Global Financial Centres Index, which was produced by the China Development Institute and the London think tank Z/Yen Partners. As a vibrant innovation hub with one of the highest densities of inventors and scientific authors, Shenzhen–Hong Kong– Guangzhou ranked second among the biggest science and technology (S&T) innovation clusters in the world in The Global Innovation Index 2022.
– The Hong Kong Stock Exchange has been the world’s top IPO market seven of the last 13 years and an increasingly popular choice for Asia’s FinTech companies thanks in part to highly attractive listing rules designed for tech companies. In 2022, Hong Kong remained as one of the world’s most active IPO fundraising hubs with 33 new listings during 1H 2023 and a strong pipeline with 104 active applications as of 30 June 2023.
– In March 2022, HKEX welcomed the first Special Purpose Acquisition Company (SPAC) listing in Hong Kong. Unique to Hong Kong, the SPAC listing framework welcomes SPAC listing applications from experienced and reputable SPAC Promoters seeking good quality De-SPAC Targets, providing another attractive route to listing in Hong Kong whilst ensuring appropriate investor safeguards. HKEX welcomed five new SPAC listings in 2022, raising a total of HK$5.0 billion, reflecting strong market interest and demand for this alternative listing route.
– HKEX ETP new product listings continue to expand, with 29 new ETPs listed in 2022 and 8 in 1H 2023, including the first metaverse-themed ETF, the first carbon futures ETF, the first blockchain ETF, as well as Asia’s first crypto asset ETFs. The listing of the first Bitcoin futures ETF and Ether futures ETF in Hong Kong in December 2022 marks an important milestone for the virtual asset ecosystem in Asia.
– HKEX has introduced FINI (Fast Interface for New Issuance) in October 2023 – a new digital platform that modernises the IPO settlement process and will shorten the time gap between IPO pricing and trading, giving investors quicker access to new listings, reducing market risk and improving efficiency for all parties involved.
A Supportive Regime and Ecosystem Focusing on FinTech Development
– Stable, world-class regulatory regime with attractive sandboxes and initiatives to pioneer FinTech development in emerging areas. No exchange controls or restrictions on capital inflows and outflows make Hong Kong one of the freest markets for FinTech companies to grow and expand cross-boundary operations. Start-ups also benefit from a low and simple tax structure, as well as a variety of generous government support, funding, and subsidy schemes.
– Banks of all asset sizes plan to dedicate more financial and talent resources to Fintech. The expected financial investment by small and medium-sized banks is set to grow by over 50% and 80% respectively in the next three-year period. Regtech, Paytech and Lendingtech are currently and set to remain the top three most commonly adopted Fintech business areas by 2025. Greentech adoption is set to increase rapidly and projected to double to around 60% of banks by 2025. Similar momentum can also be seen for Legaltech, with its adoption rate expected to almost double to around 40% by 2025, according to an assessment by HKMA in June 2022.
– In June 2021, the HKMA announced the “FinTech 2025” strategy to encourage the financial sector to adopt technology by 2025, and to promote the provision of fair and efficient financial services for the benefit of Hong Kong citizens and the economy. The focus areas include: 1. All banks go FinTech by fully digitizing operations
2. Future-proofing Hong Kong for Central Bank Digital Currencies (CBDCs) by increasing Hong Kong’s readiness in issuing CBDCs at both wholesale and retail levels
3. Creating the next-generation data infrastructure by enhancing the city’s existing data infrastructure and building new ones
4. Expanding the FinTech-savvy workforce by collaborating with various strategic partners to groom all-round FinTech talent
5. Nurturing the ecosystem with funding and policies by setting up a new FinTech Cross Agency Co-ordination Group and various industry key players to formulate supportive
policies for the Hong Kong FinTech ecosystem
– As one of the key initiatives under its “Fintech 2025” strategy, Commercial Data Interchange (CDI) is officially launched on 24 October 2022, signifying a new era of data sharing. With the launch of CDI, financial institutions could embrace more innovative applications to digitalise and streamline a wide range of financial processes, such as Know-Your-Customer (KYC), credit assessment, loan approval and risk management. It was estimated that CDI had facilitated more than 3,100 loan applications, amounting to about HK$2.8 billion since its production launch.
– In August 2023, the HKMA unveiled a new Fintech Promotion Roadmap, outlining the key initiatives that it will undertake over the next 12 months to give further impetus to Fintech adoption in the financial services industry. The new Roadmap focuses on the Fintech business areas of Wealthtech, Insurtech and Greentech as well as the technology types of Artificial Intelligence (AI) and Distributed Ledger Technology (DLT). To implement the Roadmap, the HKMA will launch a series of activities in the coming 12 months, including:
1. establishing a Fintech Knowledge Hub which includes a new cross-sectoral directory of Fintech service providers and financial institutions to enhance accessibility of resources for various stakeholders in the Fintech ecosystem;
2. hosting more regular Fintech showcase events and roundtables to establish more in depth communication among financial institutions and Fintech service providers;
3. organising interactive seminars and training sessions on the specific Fintech areas to encourage exchange of practical knowledge across different financial sectors; and
4. publishing use case videos and research reports to provide insights into a wider range of practical considerations across the entire Fintech adoption lifecycle.
– During FinTech Week 2022, the Government issued a policy statement on the development of Virtual Assets (VA) in Hong Kong, recognising VA is here to stay and the potential of distributed ledger technologies (DLT) and Web 3.0 to become the future of finance and commerce. The Government, in conjunction with the financial regulators, are working towards providing a facilitating environment for promoting sustainable and responsible development of the VA sector in Hong Kong.
– Over the past few years, the Government and the regulators have developed a comprehensive framework for the regulation of VA activities, under the “same activity, same risks, same regulation” principle. A new licensing regime for VA Service Providers will take effect on 1 June 2023 to align requirements for VA Exchanges in terms of anti-money laundering, counter-terrorist financing (“AML/CTF”), and investor protection to those currently applicable to traditional financial institutions, hence offering licensed VA Exchanges the status and credibility to access a wider net of investors in the Hong Kong market.
– As of end-June 2023, Invest Hong Kong has received expressions of interest from over 120 virtual asset-related Mainland and foreign companies in establishing their presence in Hong Kong.
– The Government and the regulators are exploring the following pilot projects to test the technological benefits brought by Virtual Assets and their further applications in the financial markets. In February 2023, the Government successful issued the world’s first government tokenized green bond of HK$800 million, showcasing Hong Kong’s strengths in combining bond market, green and sustainable finance as well as fintech. e-HKD, another key pilot project, has made headway along the three-rail approach announced by HKMA in September 2022.
GBA as a Gateway for FinTech companies to Prosper
– The GBA Wealth Management Connect Scheme facilitates cross-boundary wealth management within the GBA, an open and economically vibrant region with a population of over 86 million. The GDP of the GBA exceeded RMB13 trillion in 2022. While promoting the organic growth of our local wealth management market, it will drive the development of the entire financial services value chain, encompassing product development, distribution, asset management and related professional and support services.
– The HKSAR government is also working with the regulatory authorities in the Mainland to explore enhancement measures for the Cross-boundary Wealth Management Connect Scheme, such as increasing quotas gradually, expanding the scope of eligible investment products, inviting more participating organisations and improving the distribution arrangement. The People’s Bank of China (PBOC), SFC and HKMA launched on 15 May 2023 the Northbound Trading of Swap Connect, the new mutual access programme between Hong Kong and Mainland China’s interbank interest rate swap markets. As the world’s first derivatives mutual market access programme, it will help forge stronger connectivity between Hong Kong and Mainland’s capital markets, further supporting their mutual development and strengthening Hong Kong’s role as an international financial centre.
– In October 2021, HKMA and PBoC signed a Memorandum of Understanding (MoU) to develop a one‑stop platform in the form of a “network link‑up” to allow eligible financial institutions and technology firms to conduct pilot trials of cross‑boundary financial technology projects
concurrently in Hong Kong and the Mainland. Beginning February 2022, the HKMA and the People’s Bank of China (PBoC) are ready to accept applications from financial institutions (FIs) and technology firms for conducting pilot trials of cross-boundary FinTech initiatives in the Greater Bay Area (GBA).
Strong Funding Landscape
Hong Kong has a rich and diverse funding landscape. This includes both government backed and private funding for smaller start-ups; private equity and venture funding for scale-ups, and one of the world’s top IPO markets.
– Government Funding – As of 9 May 2023, the Hong Kong government provides 45 grants for enterprises and organizations in different sectors. The 2023-24 budget also aligned with national development strategies and Hong Kong’s position fostering I&T and FinTech enhancement in the city. The government has allocated HK$50 million to expedite development of the Web3 ecosystem and set up a task force to advise on the sustainable development of the virtual asset industry. HKSTPC will inject $400 million into its Corporate Venture Fund and inject an additional $110 million to launch the Co-acceleration Programme.
On 6 January 2021, the Financial Services and the Treasury Bureau (FSTB) announced the launch of the FinTech Proof-of-Concept Subsidy Scheme (PoC Scheme). The PoC Scheme aims to encourage traditional financial institutions to partner with FinTech companies to conduct PoC projects on innovative financial services products. The government has further allocated a funding of $10 million to launch the 2022 scheme with over 50 successful applicants in 2 phases.
In the 2022 Policy Address, the Chief Executive announced the establishment of the Hong Kong Investment Corporation to further optimise the use of financial reserves for promoting the development of the economy and industries of Hong Kong. The corporation will manage the Hong Kong Growth Portfolio, the Greater Bay Area Investment Fund and the Strategic Tech Fund set up under the Future Fund as well as the newly formed Co-Investment Fund.
– Private Funding – Hong Kong has the 2nd largest fund pool in Asia Pacific in 2021, behind Mainland China. Hong Kong’s private equity capital under management as of end-2022 amounted to US$208.3 billion, ranking second in Asia. Hong Kong was also ranked the largest hedge fund hub in Asia as at March 2022. According to Statista, total capital raised in the venture capital market is projected to reach US$3 billion in 2023.
– The Government has introduced the limited partnership fund (LPF) regime from August 2020 to attract private investment funds to set up and operate in Hong Kong in the form of limited partnerships. As at end-February 2023, over 600 LPFs were registered in Hong Kong. The Government has also introduced a re-domiciliation mechanism for foreign funds since November 2021 to attract foreign funds to re-locate their registration and operation to Hong Kong.
– IPO – Funds raised through initial public offerings (IPO) in Hong Kong amounted to nearly HK$105 billion in 2022, making Hong Kong the fourth largest IPO centre in the world.
– HKEX has added a new 18C Specialist Technology chapter to the Main Board Listing Rules on 31 March 2023, supporting a rich pipeline of specialist technology companies as they access capital to fund innovative ideas and growth.
Emerging FinTech Innovation
Virtual assets (VA) – The circular issued in January 2022 by the SFC and HKMA sets out regulatory guidelines for traditional financial intermediaries and banks to follow when they are (1) distributing VA related products; (2) providing VA dealing services; and (3) providing VA advisory services to clients.
Another circular by HKMA in April 2023 listed best practices of risk-based approach in banking services for corporate customers, mentioning in particular that authorized institutions should endeavour to support VASPs licensed and regulated by the SFC on their legitimate need for bank accounts in Hong Kong. As Hong Kong is stepping up efforts to cultivate a Web3-friendly environment, ZA bank has announced in April 2023 to be the first virtual bank that provides essential banking services to Web3 enterprises.
– In June 2022, the government gazetted the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 in an effort to enhance Hong Kong’s regulatory regime for combating money laundering and terrorist financing. Any person who seeks to carry on a business of operating a virtual asset exchange is required to apply for a license from the SFC. The passage of the Bill by the Legislative Council has been made in December 2022. The licensing regime for VA service providers as well as other amendments on AML/CTF
requirements, will take effect on 1 June 2023.
– The Bank for International Settlements (BIS) Innovation Hub and HKMA concluded Project Genesis in November 2021, which concept-tested the issuance of tokenised green bonds to retail investors in Hong Kong. The two prototype digital platforms combine blockchain, smart contracts, internet-of-things, and digital assets, aiming to enable investment in green bonds with higher transparency and greater access to retail investors.
– HKMA together with the Bank of Israel (BOI) and the Bank for International Settlements Innovation Hub (BISIH) Hong Kong Centre published a joint report, titled “Project Sela – An accessible and secure retail CBDC ecosystem” in September 2023 with practical insights into the cybersecurity, technical and policy aspects of a retail CBDC implementation.
Regtech – In January 2022, HKMA issued the fifth issue of the Regtech Adoption Practice Guide, providing implementation guidance to help banks apply RegTech solutions for cyber risk management. It offers advice on how banks can use these solutions to address the latest cyber risk emerging from container technology and remote working arrangements.
– In April 2022, HKMA launched the Regtech Knowledge Hub to encourage greater sharing of Regtech adoption experience and expertise within the Regtech ecosystem in Hong Kong. The Hub provides an online platform for the Regtech community, including banks and Regtech providers, to share success stories and implementation experience, while also acting as a central repository of the HKMA’s Regtech-related information, including past circulars, guidance papers, and research reports.
– Trade Finance – The trade finance platform, eTradeConnect, is a large-scale multi-bank blockchain project in Hong Kong by a consortium of twelve member banks. eTradeConnect aims to improve overall trade efficiency, reduce risks and fraud by digitising trade documents and automating trade finance processes.
– Faster Payments System – Faster Payment System (FPS) was launched in October 2018. FPS operates on a round-the-clock basis and connects banks and stored value facility (SVF) operators on the same platform. FPS registrations exceeded 10 million in March 2022, and grew further to 10.9 million as of the end of August. Average daily turnover reached 928,000 real-time transactions in August, representing a surge of 17 times as compared to that when the FPS was just launched.
– Sandboxes – Hong Kong has three sandboxes for the banking, insurance and securities sectors to help promote the development of mainland FinTech companies in Hong Kong. As of end August 2023, pilot trials of 305 FinTech initiatives had been allowed in the FSS. Separately, banks have collaborated with tech firms in 217 trial cases. Usage of the FSS as of August 2023:
|Number of pilot trials
|Distributed ledger technologies
|Application programming interface (API) services
|Mobile application enhancements
Diversity of FinTech Companies
A unique feature of Hong Kong is its highly diverse range of FinTech companies operating in sectors including virtual banking, insurance technology, asset management, robo-advisory, blockchain, digital trading, payments, and cybersecurity.
– The FinTech companies in 2022 are from a broad range of sectors including WealthTech; payments and remittance; digital asset & cryptocurrency; FinTech enterprise solutions; InsurTech; compliance & RegTech; CreditTech and others.
– Digital Investment is expected to be the largest segment with with a AUM of US$375.80m in 2023, while the Digital Assets market is expected to show a revenue growth of 37.0% in 2024, according to Statista.
– Digital assets have evolved to an alternative asset class in recent years. According to a joint report by KPMG China and Aspen Digital, 92% of respondents in Hong Kong and Singapore were interested in investing in digital assets, with 58% of family offices and high-net-worth individuals already investing, while 34% are planning to make such investment.
– FinTech companies benefit from being in close proximity to the world’s largest financial institutions across banking, insurance, asset management and payments. Over 70 of the largest 100 banks in the world have a presence in Hong Kong and over 29 multinational banks have their regional headquarters in the city.
– Virtual Banking – Since 2019, the HK Monetary Authority (HKMA) has issued 8 virtual banking licenses.
– Insurance – Since 2018, the HK Insurance Authority (HKIA) has issued virtual insurance to 4 insurtech companies.
One of The Richest FinTech Ecosystems in Asia
Hong Kong has one of Asia’s richest ecosystem of public and private organisations to accelerate, invest and support FinTech companies. Some of the key organisations supporting FinTech companies include:
– Cyberport is a business park and ecosystem for digital companies, housing over 400 FinTech companies. Cyberport also has a private equity fund to invest in FinTech start-ups. In February 2022, global blockchain leader R3 established its “Innovation Lab” at Cyberport to help Hong Kong FinTechs seize CBDC opportunities.
– The Hong Kong Science and Technology Park Corporation (HKSTP), the city’s largest R&D base with over 1,400 I&T companies and 13,000 R&D practitioners, providing research and development infrastructure across the city. The Shenzhen branch is opened in September 2023 to support local and global I&T enterprises to capture Mainland market opportunities and attract talents, enterprises and investment to the GBA and beyond, which targets to house around 150 enterprises.
– Innovation Labs – Many world-renowned innovation laboratories have settled in Hong Kong, including Standard Chartered’s eXellerator, DBS Startup Xchange, Intact Lab Hong Kong, HSBC’s ASTRI Research and Development Innovation Lab, AMTD FinTech Centre, HKEX Innovation Lab, Bank for International Settlements (BIS); IBM Innovation Center, Deloitte’s Asia pacific Blockchain Lab, PwC’s Emerging Technology Lab, ‘Nordic Innovation House’, MIT Hong Kong Innovation Node, and the Tuspark owned by Tsinghua University-backed Tus-Holdings.
– Accelerators – Many financial institutions have set up accelerators to promote cooperation among regulators, customers, business partners and technology companies. This includes Accenture’s FinTech Innovation Lab, Helix, Loopnest Blockchain Acceleration Programme, Betatron, and Hype Asia. Other notable accelerators include the ‘DBS Accelerator’ operated by DBS and venture capital Nest.
– InvestHK is the department of the Hong Kong Special Administrative Region Government responsible for attracting foreign direct investment. It has set up a dedicated FinTech team to attract the world’s top innovative FinTech enterprises, start-up entrepreneurs, investors and other stakeholders to set up their businesses in Hong Kong or scale their business via Hong Kong into Mainland China, Asia and beyond.
– Hong Kong FinTech Week celebrates global hub’s scale-up opportunities for the FinTech industry in Hong Kong and across the Guangdong-Hong Kong-Macao Greater Bay Area. Hong Kong FinTech Week 2023 will be held from 30 Oct to 5 Nov, with the main conference and exhibition on 2 and 3 Nov at the Hong Kong Convention and Exhibition Center. It targets to attract over 30,000 visitors and over 5 million views online from over 90 economies, featuring over 300 distinguished speakers and over 540 exhibitors. Please visit www.FinTechweek.hk to receive further updates.
– Global Fast Track helps global fintech businesses be viable, visible and scalable via Hong Kong to Asia and beyond by connecting them to corporates, investors and service providers. Its Global Scaleup Competition – to select the most promising Fintech, AI and Web3 companies through semi-final pitching across 12 different cities globally and 1 virtually. The final will be held at the Hong Kong Fintech Week.