February 28, 2024

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Hong Kong grants first digital banking licences

According to a recent report, Hong Kong granted its first batch of digital banking licences. The pool of companies granted licences is varied – allowing both traditional financial institutions and Chinese companies a chance to compete for a $15bn pot of retail banking business in Hong Kong.

The Hong Kong Monetary Authority issued licences to three companies. However, observers were surprised that two massive Chinese technology companies were left out of the first round of approvals. The two groups have brought about a revolution in personal financial services and payments in their home market, reducing customers’ daily interaction with traditional banks to almost nothing.

The HKMA has deemed to issuing of the licences a milestone for the city, adding that five more applications were still under consideration and further announcements would come “sooner rather than later”.

While the absence of China’s big technology groups was “unexpected”, experts look forward to what they will do when they get virtual banking licences (i.e., what services they will provide) — given their highly developed ecosystems in China and their presence in Hong Kong.

The first batch of approvals despite news that Hong Kong has fallen behind its global peers in financial services innovation. So, the issuing of the licenses has set high hopes for digital banks in the territory, where traditional incumbents dominate the market but customer satisfaction is among the lowest for a developed economy.

An expert noted that the move was the best thing to happen to Hong Kong fintech in many years. The combination of banks and non-banks allows for the creation of genuinely new types of products.

The companies that received licences intend to begin operating within nine months.

Expert analysts have estimated that about $15bn, or 30 per cent, of the city’s total banking revenue, is available for the taking.

The four largest banks account for about 66 per cent of all retail banking loans in Hong Kong, according to research. HKMA has been criticised for maintaining the status quo for retail banking as many other developed markets have opened up.

The city’s regulator has attempted to foster a financial technology culture but often with traditional banks guarding the door. When it set up its fintech sandbox in 2016, the programme was focused on helping banks experiment with new technologies, not helping start-ups.

However, with the licenses being now issued to various types of industry players, the playing field is slowly being levelled, and Hong Kong is even closer to becoming a global FinTech hub.

In January 2019, OpenGov Asia reported that the FinTech sector in Hong Kong is likely to make some radical changes to the world’s financial industry. This can be attributed to a team of devoted government officials.

In terms of promoting financial technology, there is no dearth initiatives taking place in Hong Kong. The region boasts of some 550 FinTech companies based in Hong Kong – a steady increase from about 140 in 2016. Of these, 52 per cent are from abroad while the remainder is local.

The HKSAR government signed off on an HK$500 million fund launched to develop financial services and other revolutionary technologies over the next half-decade. This is proof that Hong Kong is dedicated to boosting the application and adoption of FinTech in the region.

The Hong Kong Government also injected HK$5 billion into the Innovation and Technology Fund (ITF) in 2016 which benefits FinTech and other start-ups.

While FinTech is growing rapidly in Asia, Hong Kong’s business-to-business (B2B) environment stands out. This is because payments are only a part of FinTech; Hong Kong is working to develop other complex systems for banking, finance, insurance, FinTech regulation and market-to-market wealth management activities.

Some of the main development areas that are in line Hong Kong’s strategic advantages include being a key international financial centre renowned for having one of the world’s freest economies, high-tech infrastructure and extensive strategic business connections with the mainland.

Hong Kong sees itself as a conduit through which global FinTech companies can enter the mainland market and as a launching pad for businesses from across the border to “go global”.

Thus, issuing the licenses is helping to attract companies of all types – foreign and local; big and small – to Hong Kong.


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