Hong Kong sees wealthtech, regtech segments driving fintech growth

Hong Kong. Source: Robert Bye/Unsplash

Fintech segments including regtech (regulation tech) and wealthtech have seen good traction in the recent few years and will remain fast-growing sectors driven by “regulator-initiated demand,” according to King Leung, head of fintech at Invest HK, a government body that supports foreign investments in Hong Kong.

Besides regtech and wealthtech, the local authorities have the “capacity and interest” to develop all major fintech sub-sectors, ranging from virtual banking and insurtech to blockchain and digital trading, to serve “substantial needs” of businesses in the city, he said.

Financial services in the city have demonstrated substantial interest in fintech adoption. According to a 2020 report by the Hong Kong Monetary Authority (HKMA), the city’s central bank, 35-56% of banks considered fintech as an opportunity, while 86% of incumbent banks were progressively integrating fintech applications across all types of financial services.

King Leung, InvestHK’s Head of Fintech

In a bid to cement its position as an international financial centre, the local regulators in Hong Kong have launched a series of initiatives to boost fintech innovations and the city’s role as part of the Greater Bay Area (GBA).

The GBA, which covers a population of over 86 million, was introduced in 2017 as a government scheme to link the special administrative regions of HK and Macau with nine cities in southern China to form an integrated economic and business hub.

Leung pointed to the Wealth Management Connect, an initiative launched this September to allow individual investors in the GBA to invest in wealth management products distributed by banks in each other’s market through a closed-loop funds flow channel. Furthermore, a two-year regtech roadmap was released in November 2020 to drive banks to explore the use of tech for risk management and compliance, he said.

Similar programmes that could help promote fintech innovations include Exchange-Traded Fund (ETF) connect, a cross-border scheme that officially opened in October 2020 to give Chinese investors exposure to overseas assets through ETFs listed in HK, among others.

Financial institutions need to bring on fintech to comply with the regulations, said Leung. Initiatives as such have brought traffic to both B2C and B2B fintech businesses, as well as major banks. Fintech technologies are needed to “serve all these demands more efficiently, especially demands from tech-savvy mainland Chinese residents,” he said.

‘Fair game’

In the city that has one of the world’s biggest capital pools, private and public funding also contributes a fair share in driving the development of some 600 fintech companies and startups.

HK has the second-biggest fund pool in the Asia Pacific in 2020, only after mainland China. Data from InvestHK shows that the average fund size in HK’s private equity and venture capital sectors was $863 million and $126.8 million, respectively. HK’s initial public offering (IPO) market topped the world ranking in 2019 – the seventh time in the past 12 years.

The massive capital support has given rise to a few fintech unicorns, or privately held fintech firms valued at over $1 billion, including the $4-billion-worth cross-border payment service provider Airwallex, digital wallet operator TNG, and WeLab, which is said to be in preparation for an IPO.

“HK is not in a disadvantaged position” although the sheer size of its market is nowhere in comparison with mainland China or the US, said Leung.

Excluding such markets with incomparable populations, “most other places are fair game” in attracting investors because fintech firms elsewhere need to have global expansion in mind, said Leung. Another important factor that has helped HK fintech rope in global investors, he said, is the city’s abundant financial talent and entrepreneurs.

HK entrepreneurs are usually equipped with “very strong domain knowledge of finance,” which enables them to be in “a strong position” to start a fintech business with the right tech team, he said.

The latest data from InvestHK shows that fintech firms in the city span a broad range of sectors, with wealthtech accounting for 19%, payments and remittance at 13%, fintech enterprise solutions at 12%, digital assets at 10%, insurtech at 8%, blockchain application at 7%, and regtech at 6%.

For wealthtech, the market is massive and in demand of varied solutions such as robo-advisory, and even payments despite the presence of venture-backed, well-funded players, said Leung. He said that large-scale, resourceful financial institutions are open to working with smaller startups for their creative solutions to help address business pain points.

“The market has not yet reached a stage for consolidation. There are still opportunities for emerging startups with differentiated offerings,” he said.

Companies’ interest in regtech has also increased due to “internally-driven factors,” said Leung. “As the international market becomes more compliance-centric… banks and insurance companies themselves are raising the game… [resorting to] regtech for more cost-efficient solutions.”

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.