Hong Kong Towards a Leading Global FinTech Hub

64 65 Business Environment Part I: Examination of Seven Fintech Hubs Hong Kong is attractive to businesses around the world for its business-friendly tax system, strong capital market and funding landscape, well-established banking industry that embraces fintech, vibrant fintech community with partnership platforms and global network opportunities, as well as being part of the Greater Bay Area (GBA) that offers many opportunities. Without foreign exchange controls or restrictions on capital inflows and outflows, Hong Kong is one of the freest markets for fintech companies to develop and expand their business across borders. With a highly competitive tax system and no global taxation, estate duty, withholding tax on investments, wine duty, capital gain tax and sales tax, Hong Kong is a very attractive tax environment for doing business. There are more than 2,100 listed companies in Hong Kong. 204 As global fintech investment reached the third highest annual total in history to US$105bn, 205 the year 2020 was also a fruitful year for Hong Kong with its fundraising activities. According to the data from the Hong Kong Exchanges and Clearing Limited (HKEX), its IPOs raised US$51.28bn equity fund in 2020, making Hong Kong the second largest IPO market in the world. 206 Although the number of fintech companies and fintech deals completed in Hong Kong was less than that in Singapore, 207 Hong Kong is proven to have more capability to groom HONG KONG Business Environment Insufficient Sufficient fintech unicorns compared to Singapore. Three of the eight unicorns in Hong Kong are fintech startups, namely Airwallex , a cross-border payment service provider; TNG , a digital wallet company; and WeLab , an online Peer-to-Peer lending platform. As a well-established financial center and a top global city, Hong Kong aspires to provide a conducive environment for both the traditional finance and the fintech sectors to innovate, digitize and collaborate. The Hong Kong banking industry has widely adopted a range of fintech solutions, such as mobile banking, Open APIs, machine learning, predictive analytics, and cloud computing. The banks’ fintech strategies are major influencers of the fintech development in Hong Kong. The Hong Kong banking sector sees fintech development as an opportunity rather than a threat to its business operation, 208 and are particularly optimistic about the great potential of risk management services and plan to increase investment in AI in the next five years. Regtech and blockchain are the two fastest growing fintech clusters in 2019, followed by insurtech, wealthtech and digital assets. 209 In recent years, banks and financial regulators have been exploring the further use of AI to improve regtech and supervisory capacity (suptech) to increase efficiency and accuracy. The fintech community of Hong Kong, which embraces partnership building and co-creation, complements the city’s attractive business environment. The Hong Kong fintech industry covers a broad spectrum of areas, such as payment, wealth management, regtech, insurtech, cryptoassets, blockchain, AI and big data, and the ecosystem is comprehensive where all stakeholders, including financial institutions, regulators, academia, investors, and entrepreneurs, are actively engaged with each other. Fintech companies and practitioners in Hong Kong are well connected and supported by multiple public and private organizations, where they can find all kinds of fintech-related information, funding support, events and seminars to facilitate knowledge exchange, and networking opportunities with other like-minded fintech enthusiasts. The industry has been demonstrating strong collaborative efforts in conducting fintech research, nurturing fintech talent, and promoting Hong Kong fintech to the world. Since 2016, Hong Kong has established one of the largest engagement platforms for the global fintech community, the Hong Kong Fintech Week , which brings together the brightest minds and the best fintech companies, entrepreneurs and visionaries from around the world. The event provides a platform for the fintech community to build connections, collaborate and initiate partnerships through satellite events, inspiring debates and panel discussion covering the latest and hottest topics of fintech. The Hong Kong Fintech Week has become the flagship event of the international fintech community and has successfully catalyzed Hong Kong’s global branding as a fintech hub. It also demonstrates the government’s commitment to sustainable development in the fintech field. Its organizer, InvestHK, plays an important role in connecting the local and overseas fintech communities. In 2019 alone, it sponsored 34 fintech events in Europe, the US and the Mainland China, and conducted visits and roadshows in London, New York, Paris, San Francisco, Shanghai, Shenzhen, Singapore, Tokyo, Zurich and more to promote the Hong Kong fintech ecosystem and fintech companies. 210 Hong Kong also hosts other well-attended international conferences and events, such as the Asian Financial Forum (AFF) and Hong Kong Blockchain Week . In addition to local and international opportunities, Hong Kong is also the perfect springboard for both foreign companies to enter the Mainland China market and China companies to go global. As one of the four core cities to serve as the engines for development in the Greater Bay Area, 211 which is descirbed as “one of the most unique, intricate and prosperous regions in the world”, 212 there are ample opportunities for the Hong Kong fintech industry – if fully utilized–to develop and expand much faster in the global fintech race. In seven of the past 11 years, Hong Kong ranked as the most resilient economy in Asia 213 and the world’s top IPO venue. 214 Among the 100 largest banks in the world, more than 70 have presence in Hong Kong, and over 29 multinational banks have set their regional headquarters in the city. Together with eight virtual banks, four virtual insurance companies, more than 160 insurers and over 800 wealth and asset managers, 215 Hong Kong has a sophisticated and mature banking industry, a robust fintech community and a talented assembly of financial services professionals for fostering fintech innovation and development. In 2020, the total number of regional headquarters in Hong Kong reached 1,500. 216 More than 9,000 companies whose parent companies are outside Hong Kong, most of which are from Mainland China, Japan, Singapore, the US and the UK. 217 In 2020, there were more than 3,300 startups in Hong Kong, accounting for over 10,000 jobs in the market and fintech is one of the emerging startup sectors. 218 Hong Kong has been performing well on various global rankings and indexes, and certainly not shy from some of the strongest financial cities including Singapore, Japan, China, and the UK. However, there is room for improvement in terms of facilitating innovation and the overall startup ecosystem for Hong Kong to get ahead of other competitive cities in the region, such as Singapore, Beijing, and Shanghai. In general, Hong Kong is facing fierce competition with other up-and-rising technology hubs in the region. A lag of scaling experience in technology has caused it to lag behind its Asian counterparts. Hong Kong as a Global Fintech Hub: Business Environment 204. HKEX. | Hong Kong and Mainland Market Highlights (As of May 2021). | https://www.hkex.com.hk/Mutual-Market/Stock-Connect/Statistics/Hong- Kong-and-Mainland-Market-Highlights?sc_lang=en#select3=0&select2=3&select1=0 205. KPMG. | VC investment in fintech more than doubles in second half of 2020 – expected to remain strong into 2021 (Feb 2021). | https://home.kpmg/xx/ en/home/media/press-releases/2021/02/vc-investment-in-fintech-more-than-doubles-in-second-half-of-2020.html 206. China Daily. | Hong Kong was 2nd largest IPO market in 2020 (Jan 2021). | https://www.chinadailyhk.com/article/154844#Hong -Kong-was-2nd-largest- IPO-market-in-2020 207. According to Accenture, Singapore had over 1,100 fintech companies and completed 108 deals with a total investment of US$862mn. For details, please visit https://www.straitstimes.com/business/companies-markets/fintech-investments-in-singapore-more-than-doubles-to-12-billion-in-2019 208. Hong Kong Academy of Finance. | FINTECH: Adoption and Innovation in the Hong Kong Banking Industry (May 2020). | https://www.aof.org.hk/docs/ default-source/hkimr/applied-research-report/fintechrep.pdf 209. InvestHK. | Fintech Hong Kong – Fast tract your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/FintechHK%20Flyer_ENG_ Jan%202021.pdf 210. InvestHK, Commerce and Economic Development Bureau, The HKSARGovernment. | Legislative Council Panel on Commerce and Industry: Promotion on Inward Investment (Apr 2020). | https://www.legco.gov.hk/yr19-20/english/panels/ci/papers/ci20200421cb1-535-5-e.pdf 211. Bayarea .gov.hk . | Development Focus (2021). | https://www.bayarea.gov.hk/en/focus/bayarea-cities.html 212. Fintech News Hong Kong. | A Deeper Look into The Greater Bay Area, China’s Answer to Silicon Valley (May 2019). | https://fintechnews.hk/9277/ fintechchina/greater-bay-area-fintech/ 213. InvestHK. | Fintech Hong Kong – Fast tract your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/FintechHK%20Flyer_ENG_ Jan%202021.pdf 214. Hong Kong Monetary Authority. | Hong Kong as an International Financial Centre (2021). | https://www.hkma.gov.hk/eng/key-functions/international- financial-centre/hong-kong-as-an-international-financial-centre/#hong_kong_financial_service_sector_at_a_glance 215. InvestHK. | Fintech Hong Kong – Fast tract your next success (Jan 2021). | https://www.investhk.gov.hk/sites/default/files/FintechHK%20Flyer_ENG_ Jan%202021.pdf 216. Census and Statistic Department, the HKSAR Government. | Table 133: Number of Regional Headquarters in Hong Kong by Country/Territory where the Parent Company was Located (Nov 2020). | https://www.censtatd.gov.hk/en/web_table.html?id=133 217. InvestHK. | Hong Kong: from startups to regional headquarters – Hong Kong Vibrant International Business Community (2019). | https://www.investhk. gov.hk/sites/default/files/RHQ%20and%20Startups%20Surveys%202019_entc.pdf 218. HKTDC Research. | Hong Kong Start-Up Survey: Ecosystem Overview (Feb 2021). | https://research.hktdc.com/en/article/NjYwMTUyNDYy