Korea's fintech players advised to look beyond domestic markets
By Kim Bo-eun
|Fintech Association of Hong Kong Chairman Benjamin Quinlan / Korea Times photo by Kim Bo-eun|
Hong Kong has developed into a fintech hub, backed by its status as a global financial center, and also by an adequate regulatory environment, the head of the city's fintech association said.
"I would say it is an 'institution-first' approach, under which the mass retail environment is guarded by having institutions first test out new innovations and then potentially relaxing regulations," Benjamin Quinlan, chairman of the Fintech Association of Hong Kong (FTAHK), said in an interview with The Korea Times. "A case in point is Hong Kong's regulations for virtual assets, given all of the calamity, scams and potential hazards associated with the crypto industry."
Hong Kong regulators, in addition to requiring all virtual asset service providers to be licensed, have restricted investment to only professional investors. To qualify as a professional investor, an individual has to have $1 million in their portfolio.
"While a lot of retail investors might not enjoy the regulation, it's not just something that is nice to have ― it is a must for institutions to participate to have regulatory clarity," Quinlan said.
Given that the necessary safeguards are in place, the association's stance is that substance or function should be prioritized over form when it comes to cryptocurrencies. The association is highly engaged in government consultations around fintech policies.
At the same time, the government has offered substantial policy support for the fintech industry through regulatory sandboxes, funding and talent innovation programs.
Hong Kong's fintech industry has, of course, mainly benefitted from the city's vast asset base as well as an investor base with high net worth, which enables large amounts of capital availability to funnel funds into new and even mature fintech projects. Businesses have been attracted to Hong Kong as it also serves as a major IPO destination.
In addition, the city has functioned for decades as an international talent hub, offering a competent human resources pool for financial services ― while various aspects of the government's COVID-19 response have had an adverse impact in retaining talent.
|The photo shows the Fintech Association of Hong Kong (FTAHK)'s directors and co-chairs at Hong Kong Fintech Week held in November 2021. Courtesy of FTAHK|
About 600 fintech firms operate in Hong Kong, and the industry is focused on B2B services, given the small size of the retail market.
Hong Kong's fintech scene is unlike that of Silicon Valley, which is centered on incubating startups, and is also different from that of Israel, which focuses on artificial intelligence (AI).
Mainland China's fintech industry is more focused on B2C services, given its vast retail customer market of 1.4 billion. China has led cutting-edge AI machine learning, with the mainstream adoption of the technology backed by its tech giant platforms.
Hong Kong's industry is more of an ecosystem that links traditional financial institutions with established fintech players, Quinlan said.
"Hong Kong has been seen as much more of a testing bed to go international and the city also acts as a good regulatory litmus test for B2C companies," he said.
Hong Kong saw a fintech explosion around 2017. Around this time the association was also established. Growth of the industry further accelerated in 2020, following the outbreak of the COVID-19 pandemic.
"The year of 2020 was interesting because it acted as a broader catalyst for fintech, as central banks around the world printed a lot of money that created huge liquidity pools and for fintechs ― access to funding," Quinlan said.
"And I think that the COVID pandemic, if there's one good thing it did, it was driving digital adoption."
Hong Kong saw eight virtual banks launch in 2020. A report issued in September of last year by Quinlan & Associates shows that the banks collectively have 1.3 million customers, which is about 17 percent of Hong Kong's population of 7.5 million. They are currently focused on deposits and loans. The next stage is expected to center on wealth management services.
Quinlan said that given that the lenders are only in their early stages and do not offer a full range of services, they are not competing with traditional banks under the status quo.
"But it's really the next generation of consumers and customers where I think virtual banks have an edge, because they're much more digitally native," he said.
The FTAHK is involved in offshore collaboration with counterparts and markets in Singapore and Indonesia. Quinlan said that Hong Kong's fintech industry is open to collaboration with players in other parts of the world, including those based in South Korea.
"Korea has innovative stuff, particularly in crypto finance ― I definitely have the view that that has a lot of potential," he said.
But at the same time, he noted that fintech players in Korea have been focused much on the domestic market, which is "captive in terms of financial services."