However, amidst their significant contributions, SMEs often find themselves grappling with the complexities of financial management.

The traditional approach, characterised by a patchwork of disparate tools and systems, can lead to inefficiencies, errors, and a lack of a comprehensive financial overview, ultimately hindering their ability to make informed strategic decisions and achieve their full potential.

As the fintech revolution gains momentum, forward-thinking leaders are recognising the need for innovative solutions that can streamline financial processes, empower SMEs with real-time insights, and enable them to focus on their core business activities.

In this context, Fintech News Hong Kong spoke to Davis Chan, the co-founder and CEO of KPay Merchant Services Limited, to delve into his insights on the challenges faced by SMEs and the transformative potential of fintech in reshaping the landscape of financial management.

The fragmented reality of SME financial management

Davis began by shedding light on the fragmented reality of financial management for SMEs.

“Many SMEs find themselves juggling multiple tools and systems for payments, invoicing, and data management. This disjointed approach often leads to time inefficiencies as businesses spend valuable resources navigating between platforms. Moreover, the reliance on manual data entry increases the risk of errors, which can have far-reaching consequences, from inaccurate financial statements to misguided strategic decisions,”

said Davis.

This fragmentation not only hinders operational efficiency but also obscures the bigger picture.

“SMEs often struggle to gain a holistic overview of their financial health, as data remains scattered across various systems. This lack of visibility can impede their ability to make informed decisions, optimise cash flow, and seize growth opportunities,”

Davis pointed out.

The cost of inefficiency: Insights from KPay’s study

KPay’s recent study highlights the significant inefficiencies in financial management for SMEs in Hong Kong.

“55 percent of SMEs in Hong Kong remain bogged down by outdated manual bookkeeping, relying on spreadsheets and even paper for their financial records. These inefficiencies hinder their financial health and growth potential,”

Davis revealed.

The study further quantifies the impact of these inefficiencies, revealing that manually entering data into spreadsheets consumes a crippling amount of time – over 2,298 hours annually for some businesses.

Davis explained that this valuable resource could be better invested in core business activities that drive growth, such as sales, marketing, and customer service.

The study highlights the error-prone nature of manual data entry, with nearly half of the merchants citing manual data entry errors as a major reason for seeking alternatives.

These errors, Davis added, can lead to inaccurate financial statements, which can result in costly mistakes in decision-making and hinder the ability to make strategic investments and optimise operations.

The power of unified platforms

In addressing these challenges, Davis emphasised the transformative potential of unified financial management platforms.

“The key lies in embracing a streamlined approach that consolidates all essential financial functions into a single, user-friendly interface,”

he explained.

By eliminating the need to switch between multiple tools, SMEs can significantly reduce time inefficiencies and minimise the risk of errors.

Unified platforms, like the one developed by KPay, go beyond mere consolidation, leveraging automation and intelligent workflows to simplify complex processes.

“Features like automated reconciliation, bill payments, and real-time analytics can transform the way SMEs manage their finances, freeing up valuable time and resources that can be redirected towards growth-oriented activities,”

Davis elaborated.

Empowering SMEs with real-time insights

One critical advantage of unified financial management platforms is their ability to provide SMEs with real-time, actionable insights.

“When financial data is consolidated into a single platform, businesses can access real-time insights that enable them to make informed decisions, identify trends, and optimise their financial strategies,”

Davis said.

These insights can be transformative for SMEs, empowering them to make data-driven decisions across various aspects of their business.

Real-time visibility into cash flow, for example, can help businesses better manage their working capital, identify potential shortfalls, and make proactive adjustments.

Similarly, by analysing sales data, SMEs can identify their most profitable products or services, optimise pricing strategies, and allocate resources more effectively.

Addressing the HK$160,000 annual burden

KPay’s study reveals that SMEs in Hong Kong spend an average of HK$160,000 annually on financial management.

“The main cost is attributed to reconciliation time, which is over HK$100,000, while the remaining costs are related to pay-out handling and locating & verifying sales revenue,”

Davis explained.

Unified platforms like KPay offer the potential for significant cost savings. By streamlining financial operations with automated workflows and real-time analytics, our platform can reduce manual processes and errors.

“This can significantly lower financial management costs, potentially saving SMEs a substantial portion of the HK$160,000 they currently spend annually,”

said Davis.

Overcoming the resistance to change

While the benefits of adopting unified financial management platforms are clear, Davis acknowledged that change can be challenging for SMEs.

“Many businesses have grown accustomed to their existing processes and systems, even if they are inefficient,”

he explained.

There can be a natural resistance to change, especially when faced with the pressures of daily operations. To overcome this resistance, Chan stresses the importance of simplicity and user-centricity in platform design.

“The key is to create platforms that are intuitive, easy to navigate, and require minimal training. By focusing on user experience and providing comprehensive support, fintech companies can help SMEs embrace change and realise the full potential of streamlined financial management,”

he said.

The future of SME financial management

Looking ahead, Davis envisions a future where SMEs are empowered with the tools and insights they need to thrive in an increasingly competitive landscape.

“The fintech revolution is not just about digitising processes; it’s about transforming the way businesses operate and make decisions. By leveraging cutting-edge technologies like artificial intelligence and machine learning, we can create platforms that not only streamline financial management but also provide predictive insights and personalised recommendations,”

he added.

Davis believes a shift towards ecosystems and partnerships will characterise this future.

“No single platform can address all the needs of SMEs,”

he acknowledged.

The key lies in building an ecosystem of partners and integrations that can provide a comprehensive suite of services, from financial management to supply chain optimisation and beyond.

KPay’s role in shaping the future of SMEs in Hong Kong

As a prominent player in Hong Kong’s fintech landscape, KPay is actively contributing to this transformation.

“Our unified platform, powered by Airwallex’s innovative technology, is designed to streamline financial operations, reduce manual errors by 90 percent, and provide SMEs with real-time insights,”

Davis explained.

By leveraging cutting-edge technologies and focusing on user-centricity, KPay aims to be a long-term partner for SME growth in the region.

With a growing presence in Hong Kong, Singapore, and Japan, KPay is dedicated to continuous improvement and platform expansion.

“We understand that the needs of businesses evolve as they scale, and we are committed to providing a comprehensive suite of solutions that address the evolving challenges faced by SMEs. In fact, we aim to grow our merchant base tenfold within the next three years,”

said Davis.

Future for SMEs in Hong Kong

As SMEs in Hong Kong navigate the challenges of a rapidly evolving business landscape, the need for innovative financial management solutions has never been more pressing.

Davis Chan’s insights, backed by the findings of KPay’s study, underscore the transformative potential of fintech in streamlining operations, empowering SMEs with real-time insights, and enabling them to focus on growth and innovation.

By embracing unified, data-driven platforms, SMEs can not only overcome the inefficiencies of traditional systems but also position themselves for success in an increasingly competitive world.

As fintech companies like KPay continue to push the boundaries of innovation, the future of SME financial management looks brighter than ever. It promises a new era of efficiency, insights, and growth for businesses across Hong Kong and beyond.

Featured image credit: Edited from Freepik

The post How KPay Tackles the Financial Management Headaches of Hong Kong’s SMEs appeared first on Fintech Hong Kong.

Hong Kong is leading the financial revolution with its e-HKD project, managed by the Hong Kong Monetary Authority (HKMA).

Since 2017, the HKMA has been diligently exploring the potential of a digital Hong Kong dollar, primarily focusing on developing a retail CBDC for the general public and businesses.

The e-HKD Project

The HKMA has adopted a three-rail strategy for the e-HKD project to ensure a comprehensive and well-structured approach.

The first rail focuses on foundational layer development, while the second focuses on pilot programmes. These two rails are expected to converge into the third rail, marking the official launch of the e-HKD.

Although the HKMA has not committed to a specific timeline for introducing the e-HKD to the public, it remains open-minded and vigilant in monitoring international CBDC developments.

In November 2022, the HKMA embarked on the first phase of the e-HKD’s pilot programme, collaborating with prominent industry players such as Alipay, Visa, Bank of China, Standard Chartered, and HSBC.

Participants were given the freedom to design their hypothetical versions of the e-HKD, exploring various use cases, including fully-fledged payments, programmable payments, offline payments, tokenised deposits, settlement instructions for Web3, and settlement of tokenised assets.

The second phase commenced in March 2024, building on the success of the first phase, which concluded in October 2023.

This phase, scheduled to continue until mid-2025, aims to delve deeper into the findings from the initial phase, with a particular emphasis on programmability, tokenisation, and atomic settlement. The second phase will also introduce a sandbox program for participants to develop wholesale CBDCs.

Potential benefits for Hong Kong residents

The adoption of the e-HKD promises a myriad of benefits for Hong Kong residents. One notable use case is mortgage lending. By leveraging the e-HKD’s programmability and atomisation capabilities, borrowers could access loans from multiple lenders simultaneously, securing the most favourable interest rates.

The tokenisation and fractionalisation of property rights would enable secured lending for smaller amounts. At the same time, lenders could offer more competitive rates by issuing loans using smart contract-enabled e-HKD, mitigating credit risk.

Meanwhile, the entire mortgage process could be significantly streamlined and expedited, from application to approval and disbursement. The e-HKD also has immense potential for facilitating the tokenisation of assets such as bonds, funds, precious metals, and real estate.

According to Boston Consulting Group, Hong Kong has approximately HK$36 trillion (US$4.6 trillion) worth of assets that could be tokenised, with residential property accounting for the majority.

Digitally representing these assets on blockchains makes them more liquid, accessible, and efficient to trade. As financial institutions increasingly invest in virtual assets, a digital currency on blockchains will make settlement more accessible and more efficient, according to Raymond Chan, vice-chairman of the Institute of Financial Technologists of Asia.

For retail investors, the e-HKD could democratise access to investment opportunities that have traditionally been cumbersome and costly due to onerous onboarding processes, minimum investment sizes, steep subscription fees, and long settlement periods.

A recent report by Arta TechFin, Web3 solutions company Emali, and PwC suggests that retail investors could broadly utilise the e-HKD to manage and make small investments.

The report outlines retail investors’ challenges when dealing with wholesale financial products, including complex onboarding procedures, high minimum investment thresholds, substantial subscription fees, and prolonged settlement times.

By integrating smart contracts into the digital currency, even small investments held for brief durations could generate income for retail users in an automated manner. Fund managers would also benefit from reduced counterparty risk and the potential to increase their assets under management.

Economic impact and regulatory considerations

The adoption of new payment systems, including the retail e-HKD and stablecoins, has the potential to add HK$160 billion (US$20.4 billion) to Hong Kong’s GDP by 2032, representing an additional 0.5 percent GDP growth per year, as reported by Boston Consulting Group.

However, to fully realise these benefits, the Hong Kong government must prioritise security and privacy protection, guided by a clear regulatory framework surrounding the e-HKD.

While the e-HKD holds great promise, some experts argue it has a long way to go. Other tokenised payments, such as tokenised deposits or stablecoins, can provide similar benefits and mitigate credit risk.

According to Allen Huang, associate dean of Hong Kong University of Science and Technology School of Business and Management, people may also recognise the trade-offs between these digital currencies, depending on factors such as interest payments, use cases, acceptance ratio, and convenience level.

In times of crisis, people may flock to sovereign money like the e-HKD, but alternatives that offer interest, such as tokenised deposits, may prove more appealing during stable periods.

Hong Kong’s crypto landscape

In parallel to the e-HKD project, Hong Kong has been striving to reclaim its position as Asia’s crypto hub.

In June 2023, the region officially launched its crypto licensing regime for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services.

Furthermore, in December 2023, the HKMA, the Financial Services, and the Treasury Bureau jointly proposed a licensing requirement for all fiat-pegged stablecoin issuers. The HKMA launched a sandbox programme for stablecoin issuers in March 2024 to facilitate discussions on this proposal.

Forging ahead with e-HKD

As Hong Kong forges ahead with its e-HKD experiment and crypto-friendly initiatives, it is clear that the city is at the vanguard of shaping the future of digital currencies.

The successful implementation of the e-HKD could revolutionise the financial landscape, offering residents a more efficient, inclusive, and innovative monetary system.

While challenges remain, such as ensuring robust security measures, establishing a clear regulatory framework, and navigating the competitive landscape of tokenised payment options, the potential benefits are vast.

Financial institutions stand to gain significantly by embracing these emerging technologies. Tokenised payments allow them to offer the same services at dramatically lower costs while opening new products and service opportunities.

As the world watches, Hong Kong’s journey towards a digital financial future is a guiding light for other nations, paving the way for a new era of financial innovation and inclusion.

Featured image credit: Edited from Freepik

The post e-HKD Explained: What Does it Mean for Hong Kong appeared first on Fintech Hong Kong.

Amidst the city’s macroeconomic challenges and the growing importance of digitalisation, Aspire, an all-in-one finance platform headquartered in Singapore, has successfully obtained a Money Service Operator (MSO) License issued by the Hong Kong Customs and Excise Department.

Fintech News Hong Kong spoke with Andrea Baronchelli, CEO and Co-Founder of Aspire, to discuss the company’s vision for empowering Hong Kong’s SMEs and navigating the city’s unique business landscape.

Unlocking opportunities with the MSO license

The acquisition of the MSO License marks a significant milestone for Aspire. It enables the company to offer a comprehensive suite of financial solutions tailored to the specific needs of Hong Kong’s SMEs.

“The MSO license enables Aspire to offer a unified suite of financial solutions to small and medium-sized enterprises (SMEs) in Hong Kong. These include empowering these SMEs with the ability to open local business accounts for payables and receivables management, international payments, and payment gateway solutions, among others,”

Andrea explained.

With digital transformation becoming increasingly important among local businesses, Aspire’s tech-first approach to spend management is well-positioned to cater to the needs of Hong Kong’s growing number of digital-minded startups and SMEs.

According to a DBS survey, over 93 percent of local SMEs recognise the importance of digitalisation, a sentiment echoed by the startup ecosystem in Hong Kong. This digital shift is crucial, as data from InvestHK indicates a three-fold increase in local startups over the past decade.

“By providing them with a robust and integrated platform to streamline their business finance operations, they stand to save considering resources in the form of time and finances that can be reinvested to support long-term, sustained growth.”

Andrea added.

The evolving needs of SMEs

Hong Kong’s SMEs face many challenges, from rising costs to the lack of integrated finance systems. Traditionally, SMEs in Hong Kong have relied on conventional banking systems to manage their financial operations.

However, as the business world becomes increasingly complex and interconnected, traditional methods often fail to meet the dynamic needs of modern enterprises.

Andrea observed,

“Rising costs continue to be a top concern for Hong Kong’s businesses, with data from DBS identifying cash flow and the ability to manage costs as a top business priority among local SMEs.”

According to the survey, more than half of the respondents (55.6 percent) and Mainland China (50.8 percent) express a neutral forecast for their economic outlooks while being slightly more optimistic about Mainland China’s (27.3 percent) than Hong Kong’s (20.6 percent).

He further noted that a primary factor contributing to this pain point is the lack of an integrated finance system among many organisations.

Traditional financial management practices often involve engaging multiple service providers, each overseeing various functions such as payroll, payments, and corporate cards.

This fragmented approach not only increases operating costs but also creates data silos that hinder visibility into company finances. The resulting manual and cumbersome processes required to consolidate and analyse data further impact competitiveness and growth potential.

The power of integration

To address these challenges, Aspire offers a paradigm shift in SME finance management.

“Aspire’s integrated solution simplifies this process and helps fast-growing organisations better manage their financial data by consolidating disparate financial processes, and data flows onto a single platform,”

stated Andrea, who emphasised the importance of integration.

By providing a unified suite of financial solutions, Aspire empowers business leaders in Hong Kong to gain a comprehensive view of their finances. This enables them to make data-driven decisions that reduce costs, save time, and optimise resources.

This integrated approach streamlines operations and positions SMEs to capitalise on growth opportunities within and beyond Hong Kong.

For instance, their payment gateway solutions for Southeast Asian markets, such as Indonesia, enable Hong Kong businesses to expand effortlessly into the region.

Additionally, Aspire’s platform facilitates multi-currency cash management and cross-border money transfers, which is particularly important given Hong Kong’s role as a major Asian business hub and gateway for enterprises in mainland China to globalize.

“This empowers SMEs to seamlessly manage multi-currency cash flow and facilitate cross-border transactions with full visibility into the overhead costs, enabling them to scale and expand more efficiently,”

added Andrea.

Navigating the regulatory landscape

As the fintech revolution unfolds, the regulatory landscape in Hong Kong and across Asia continues to evolve. Compliance with an ever-changing set of rules and regulations can be daunting for SMEs, particularly those with limited resources.

However, Andrea states that compliance should be viewed not as a burden but as an opportunity to build trust and credibility.

“At Aspire, efforts to remain compliant include conducting meticulous regulatory analyses with in-house and external counsel, setting up robust compliance frameworks, policies, and procedures, and ensuring that we work closely with regulatory bodies,”

stated Andrea.

Aspire’s proactive approach to compliance involves staying attuned to industry developments and adapting swiftly to new requirements.

By fostering a culture of transparency and investing in high-caliber legal and compliance teams, Aspire ensures that its clients can focus on growing their businesses with peace of mind, knowing they are in capable hands.

Harnessing the power of AI

As the fintech landscape continues to evolve, the role of artificial intelligence (AI) in shaping the future of SME finance cannot be overstated.

Andrea highlighted AI’s transformative potential:

“Aspire is actively investing in and integrating the latest financial technologies into its platform, such as Artificial Intelligence (AI), to enhance our product and help businesses across Asia thrive in the digital economy.”

The recent introduction of Aspire AI exemplifies this commitment. This suite of AI-powered features provides real-time analytics and automates financial processes, enhancing productivity and decision-making.

“Aspire AI offers significant upgrades to our analytics dashboard, facilitating data-driven decisions in real-time. Other features include automating month-end reporting and receipt matching and smarter fraud detection processes,”

said Andrea.

Supporting SMEs through HKMA initiatives

Recognising the vital role of SMEs in Hong Kong’s economy, the Hong Kong Monetary Authority (HKMA) has introduced a series of measures to strengthen its support for SMEs further. These initiatives aim to alleviate operational pressures faced by SMEs due to varying business performances during recent economic challenges.

The Banking Sector SME Lending Coordination Mechanism, established by the HKMA in collaboration with local banks, has introduced nine new support measures tailored for SMEs. These measures include fee waivers, launching unsecured loan products, and incorporating more flexible cash flow management solutions to support SME resilience and growth.

The HKMA’s Commercial Data Interchange (CDI) will also significantly enhance credit accessibility for SMEs, especially those without property as collateral. By utilising a wide range of commercial data combined with advanced data analytics, banks are now better equipped to design credit products that address the specific needs of SMEs.

The newly launched one-stop SME information platform on the HKMA’s website is pivotal to this enhanced support. This platform provides detailed information about lending services available to SMEs, including dedicated service hotlines and various loan products like trade financing and unsecured overdrafts. It empowers SMEs to make informed decisions, boosting their bargaining power with banks.

The HKMA remains committed to closely monitoring the implementation of these support measures in collaboration with the Hong Kong Association of Banks and the Chinese Banking Association of Hong Kong.

Plans include easing the transition for credit limit adjustments and facilitating SMEs’ more efficient switch to lending banks. These initiatives reflect the HKMA’s dedication to sustaining the vital role of SMEs in Hong Kong’s economy. SMEs account for 98 percent of all businesses and are a significant source of employment.

The Financial Secretary has also extended the application period for the 80 percent and 90 percent Guarantee Products under the SME Financing Guarantee Scheme until the end of March 2026, reflecting ongoing support for SMEs. In addition, HKMC Insurance Limited is set to review and potentially expedite the loan approval process based on commercial sector feedback.

The future of SME finance in Hong Kong

As Hong Kong continues to embrace digital transformation, the future of SME finance looks increasingly promising.

With fintech redefining business financial management, SMEs must adopt innovative solutions to stay competitive and unlock their full potential.

Andrea envisions a world where SMEs have access to the same financial sophistication as their larger counterparts, enabling them to compete on a level playing field.

He concluded,

“By leveraging the power of integration, prioritising compliance, and harnessing the potential of AI, fintech providers like Aspire are empowering SMEs to thrive in an era of unprecedented change and opportunity. The future of SME finance in Hong Kong is one where businesses can focus on what they do best while leaving the complexities of financial management to trusted partners who understand their unique needs.”

Featured image credit: Edited from Freepik

The post Aspire’s Vision for the Future of SME Finance in Hong Kong appeared first on Fintech Hong Kong.

This significant milestone heralds a new phase where regulatory compliance and investor protection are paramount. The SFC remains steadfast in its commitment to safeguarding investors’ interests and upholding market integrity.

Hong Kong crypto exchanges that failed to submit their applications by the cutoff date now face the stark reality of ceasing operations in Hong Kong by 31 May 2024, as mandated by the regulator’s transitional arrangements.

Hong Kong protects crypto investors and maintains market integrity

The SFC has issued an  unequivocal message to investors: exercise caution and perform due diligence when engaging with Hong Kong crypto exchanges or Virtual Asset Trading Platforms (VASPs).

The regulator  emphasises  the importance of verifying  platforms’  regulatory status through their official website, with the  “ List of Licensed Virtual Asset Trading Platforms ”  and the  “ List of Virtual Asset Trading Platform Applicants ”  serving as crucial resources for informed decision-making.

While the applications on the  “ List of Virtual Asset Trading Platform Applicants ”  remain under review, the SFC has highlighted the inherent risks associated with trading on these platforms. Consequently, investors are strongly advised to limit their virtual asset trading activities to SFC-licensed VATPs, ensuring a higher level of protection and regulatory oversight.

The new regulations aim to enhance investor protection and market integrity by mandating comprehensive application requirements. These include management experience, industry qualifications, and external attestations.

The rules also specify token admission criteria, anti-money laundering (AML) requirements, and prohibitions on proprietary trading. Additionally, platforms must have adequate insurance or compensation arrangements to mitigate custodial risks.

The SFC reminds industry participants and investors that Hong Kong crypto exchanges must have submitted license applications by 29 February 2024 to continue operating in Hong Kong on or after 1 June 2024.

Hong Kong crypto exchanges that did not meet this deadline must close down their businesses by 31 May 2024, pursuant to the transitional arrangements. Carrying on any unlicensed activity is a criminal offence.

Two licensed crypto services providers in Hong Kong

OSL Digital Securities Limited (OSL) and HashKey Digital Asset Group Limited (HashKey) are two prominent companies licensed by SFC in Hong Kong to operate as VATPs.

17 crypto trading platform applicants in Hong Kong

Positioned as one of the pioneering entities in applying for a crypto exchange license, HKVAX emphasises the paramount importance of regulatory compliance.

According to them, their proactive approach includes securing approval-in-principle from the SFC to carry out Type 1 and Type 7 regulated activities, setting the stage for a seamless transition into the regulated landscape. The exact date of their application remains undisclosed.

VDX focuses on providing institutional digital asset solutions and leveraging industry-leading market depth and liquidity.

The specific date of their application remains veiled in strategic ambiguity and is not disclosed on the SFC website.

YAX submitted its license application on 7 February 2024. Founded in June 2022, YAX is a global cryptocurrency exchange offering various services, including virtual asset trading and custody.

YAX supports highly liquid virtual assets, such as Bitcoin (BTC) , Ethereum (ETH), and USDT.

On 7 February 2024, Bullish, a technology firm focused on the digital assets sector, applied as one of the virtual asset applicants.

The company, which announced its flagship Bullish exchange in December 2021, operates the exchange through Bullish (GI) Limited under the regulation of the Gibraltar Financial Services Commission. Bullish has established offices in both Hong Kong and Singapore.

Foris DAX HK Limited, a crypto exchange company established on 22 August 2018 in Hong Kong, submitted a license application on 9 February 2024.

The company runs Crypto.com, a platform and exchange for cryptocurrencies offering various services such as spot and derivatives trading, avenues for earning passive income, a Web3 wallet, and the creation and trading of NFTs.

Whalefin is a comprehensive digital asset platform featuring services like spot and derivatives trading, mechanisms for earning passive income, a Web3 wallet, and NFT creation and trading. It submitted its application for a license on 21 February 2024.

This platform is a venture of Amber Group, a fintech unicorn, which has garnered support from top-tier investors worldwide.

On 26 February 2024, the Hong Kong division of Matrixport , founded by Jihan Wu, applied for a virtual asset trading platform license from the Hong Kong Securities Regulatory Commission.

This application makes it one of 21 virtual assets applicants seeking the license. The crypto exchange company is currently headquartered in Singapore, serves a customer base in Asia and Europe, and is looking to extend its services to Hong Kong.

On 29 February 2024, hi5 (Hong Kong) Limited, operating under the legal entity name, applied for a license.

In anticipation of obtaining this license, the crypto exchange company has launched hkx.hi.com, an independent trading platform tailored to Hong Kong users.

Hong Kong members are advised to buy and sell cryptocurrencies exclusively through this newly established exchange.

Crypto trading platforms in Hong Kong that withdrew their license applications

Meex Digital Securities Limited (Meex) applied for a license from SFC to operate as a VATP on 10 December 2023 in Hong Kong.

However, according to the SFC’s records, Meex’s application was returned on 7 February 2024.

The Hong Kong affiliate of HTX, previously known as Huobi Global, resubmitted its application for a  crypto license to operate in Hong Kong on 26 February 2024.

Hong Kong Limited made this second application for the virtual asset trading platform Huobi HK on Monday, after retracting its initial application on 23 February, as indicated by the list of cryptocurrency exchange license applicants on the SFC website. The company has retracted its license on 14 May 2024.

Featured image credit: Edited from Freepik

The post Here Are All The Licensed Crypto Exchange Providers and Applicants in Hong Kong appeared first on Fintech Hong Kong.

The Hong Kong Financial Services Development Council (FSDC) has identified blockchain as an important area of focus due to its ability to streamline processes, reduce costs, and improve customer experiences, which could enhance the city’s competitiveness globally.

Incorporating blockchain technology into Hong Kong’s financial landscape is anticipated to bring notable changes, creating a more efficient and secure financial ecosystem.

Blockchain’s decentralised and immutable nature allows for developing solutions that can transform traditional financial systems, potentially increasing efficiency and reducing transaction costs.

The potential of blockchain in financial services

Blockchain technology has a wide range of applications beyond its association with cryptocurrencies. The global market for blockchain in fintech is expected to grow from US$1.4 billion (HK$10.93 billion) in 2022 to an estimated US$43.1 billion (HK$320 billion) by 2030, with a compound annual growth rate of 53.6 percent.

This growth has spurred the emergence of various consumer and business applications, such as supply-chain transparency, digital identity verification, loyalty programmes, and blockchain-based voting systems.

These applications demonstrate the potential of blockchain technology in various areas of business and society.

In the business-to-business (B2B) realm, blockchain technology and related components like smart contracts present promising opportunities, facilitating data sharing and identity and credentials verification.

Hong Kong’s competitive advantages as an international financial centre with a robust B2B infrastructure position it well to leverage blockchain solutions to transform traditional financial systems, increasing efficiency and lowering transaction costs.

Blockchain technology presents many innovative solutions that can transform traditional financial systems by increasing efficiency and lowering transaction costs.

Government initiatives to promote blockchain adoption

The Hong Kong SAR Government has unveiled its plan to launch over a hundred digital initiatives from 2024 to 2025 to promote digital government and smart city development.

One notable example is the adoption of blockchain technology for the electronic issuance and verification of certain licences and certificates. This initiative showcases the government’s efforts in adopting technology and its commitment to fostering innovation in the city.

The FSDC has formed a dedicated Working Group comprising industry experts to explore the potential of blockchain technology in advancing Hong Kong’s financial services industry, particularly in the context of B2B interactions.

The report covers various cases of blockchain technology use in Hong Kong and the global financial services industry, primarily focusing on examining how government and regulatory measures facilitate the adoption of blockchain-enabled applications and promote the development of Web3 in the city.

Active engagement and participation of the government and industry in the blockchain ecosystem would be essential to transforming and strengthening the financial services industry.

Successful use cases in Hong Kong and beyond

Hong Kong has already seen successful implementations of blockchain technology in various areas of the financial services industry. One notable example is the government’s issuance of tokenised green bonds.

In February 2023, the government issued an inaugural HK$ 800 million tokenised green bonds under the Government Green Bond Programme, marking the government’s first-ever issuance globally.

These tokenised green bonds were settled using cash tokens on a delivery-versus-payment basis across a private blockchain network, showcasing the potential of blockchain technology in the green finance sector.

In another significant development, Bank of China International issued CNH 200 million fully digital structured notes on the Ethereum blockchain in June 2023, making it the first Chinese financial institution to offer tokenised security in the city.

This move is a public showcase, demonstrating that virtual assets and blockchain technology applications extend beyond cryptocurrencies alone. It represents a notable step forward for Hong Kong’s digital economy and supports its digital transformation and innovative growth in the financial services industry.

The Hong Kong Monetary Authority (HKMA) has also been actively exploring the potential of central bank digital currencies (CBDCs) and tokenised deposits. The HKMA has launched various research projects to study the potential of CBDCs in wholesale, cross-border, and retail payments.

These initiatives, such as Project e-HKD and the pilot of tokenised deposit use cases, demonstrate the HKMA’s commitment to harnessing the power of blockchain technology to enhance the efficiency and effectiveness of the city’s financial systems.

On the international front, Project mBridge, a collaboration between the HKMA and other central banks, experiments with a multi-CBDC common platform for wholesale cross-border payments focusing on international trade.

This project has successfully conducted real-value cross-border payment and foreign exchange transactions, highlighting the potential of blockchain technology in facilitating seamless and efficient cross-border financial transactions.

Globally, there have been notable successes in blockchain adoption. For instance, J.P. Morgan’s Onyx Digital Assets platform facilitates intraday repurchase transactions, enabling short-term borrowing in fixed income by exchanging cash for tokenised collateral.

Since its establishment, the platform has processed over US$300 billion (HK$2.3 trillion) of repo transactions, demonstrating the scalability and efficiency of blockchain-based financial solutions.

In Europe, the European Union’s pilot regime for tokenised equities has seen Securitize issue tokenised securities, marking the first digital asset platform with securities licenses in both the US and Europe. This development showcases the growing acceptance and adoption of blockchain technology in traditional financial markets.

Factors to consider in blockchain application design

When designing blockchain applications, the FSDC emphasises the importance of considering various factors to ensure effective implementation.

Establishing a suitable governance model that outlines roles, responsibilities, and decision-making processes within the blockchain ecosystem is crucial for effective blockchain implementation. This ensures transparency, accountability, and efficient coordination among various stakeholders.

Laws and regulations also play a vital role in successfully integrating blockchain technology. Regularly reviewing the legal framework and providing updated guidance that reflects recent technological advancements will foster the integration and utilisation of blockchain technology.

To effectively oversee emerging market activities, the laws and regulations must incorporate monitoring, reporting, and a new incentive system. Industry standards and interoperability are vital considerations in blockchain application design.

Embracing industry standards promotes interoperability and facilitates blockchain integration with existing systems. This enables communication between different distributed ledger technology systems and existing infrastructures, which is crucial for seamless cross-border collaboration and data exchange.

The degree of decentralisation and anonymity should be determined based on the use case and regulatory requirements. Depending on the specific needs, a permission blockchain with restricted access or a permissionless blockchain with broader participation may be more suitable.

The volume of transactions to be handled also influences the choice between permissioned and permissionless blockchains. Ensuring the robustness and security of blockchain technology is imperative to safeguard against potential threats.

As blockchain networks are not immune to vulnerabilities and attacks, it is crucial to implement measures that ensure the technology’s resilience and security.

Addressing the talent gap is another critical factor in successfully adopting blockchain technology. Comprehensive training programmes help bridge the knowledge gap between individuals with technical backgrounds and those with expertise in financial services, promoting a skilled workforce in the fintech sector.

These programmes equip individuals with the necessary interdisciplinary skills and knowledge, covering blockchain technology’s technical and financial aspects.

Expanding opportunities for Hong Kong

Hong Kong has a unique opportunity to harness the power of blockchain on a much grander scale, ushering in transformative changes across multiple sectors. One potential area is promoting a government-participated blockchain as a utility service.

A government-participated blockchain, serving as a common blockchain utility service, can provide a reliable and readily accessible infrastructure for regulated activities.

This approach aligns with the concept of “blockchain as a public good,” where the government plays a pivotal role in providing vital services for society’s welfare.

Enabling the orderly issuance of stablecoins is another promising opportunity for Hong Kong. With the development of a regulatory regime for fiat-referenced stablecoin issuers, issuing stablecoins pegged to the Hong Kong dollar and other commonly used currencies will become possible.

This can positively impact the liquidity and market depth of the Hong Kong dollar, thereby enhancing the efficiency of the financial markets. Hong Kong also has the potential to establish itself as a blockchain-enabled carbon trading centre in Asia.

By participating in the Carbon Data Reliable Circulation (CRC) network and capitalising on partnership opportunities and advanced blockchain technologies, Hong Kong can become a regional hub for carbon data services. This aligns with the city’s efforts to combat climate change and achieve its carbon neutrality goals.

Recommendations for the way forward

To boost blockchain adoption and propel its advancement in Hong Kong, the FSDC has identified strategic initiatives across three dimensions. Firstly, regulatory adaptation and oversight for technological readiness are crucial.

Conducting industry consultations on developing a digitalisation strategy and roadmap and integrating development and regulatory oversight of blockchain applications under the established dedicated Task Force will create a conducive environment for blockchain innovation and adoption.

Secondly, cultivating a vibrant ecosystem for blockchain technology with active Government participation and strategic support is essential.

Fostering digitalisation adoption, including using blockchain technology in delivering government-substate services and initiatives, will demonstrate the government’s commitment to technological advancements and innovation, benefiting the economy and society.

Lastly, capacity building through raising public awareness and enhancing technical competency is vital. Raising public awareness and the global profile of Hong Kong’s blockchain ecosystem through targeted marketing and collaborative efforts is essential.

Establishing Hong Kong as a regional centre of excellence for training, thought leadership, and technological literacy in blockchain and emerging technologies will ensure individuals and businesses are well-equipped to embrace this transformative technology.

Embracing blockchain for a thriving financial future

Hong Kong’s financial services industry is poised to benefit significantly from integrating blockchain technology. By harnessing its power, Hong Kong can streamline processes, reduce costs, and enhance customer experiences, strengthening its global competitiveness.

Successful blockchain integration requires collaboration among the government, regulators, industry players, and academia, fostering an environment conducive to innovation and adoption.

Through collective efforts and the implementation of strategic initiatives outlined by the FSDC, Hong Kong can harness blockchain technology to boost the growth of its financial services industry, paving the way for a more efficient, transparent, and inclusive future.

The city’s commitment to exploring and adopting cutting-edge technologies, robust financial infrastructure, and supportive regulatory environment position it to solidify its status as a leading international financial centre and a hub for technological innovation.

As Hong Kong continues integrating blockchain technology into its fintech ecosystem, it reinforces its status as a thriving centre for innovation, investment, and technological progress in the financial sector. The future of Hong Kong’s financial services industry is undeniably intertwined with the adoption and advancement of blockchain technology.

By seizing the opportunities presented by this transformative technology and working collaboratively towards its integration, Hong Kong is poised to shape the future of finance regionally and globally.

Featured image credit: Edited from Freepik

The post The Transformative Potential of Blockchain for the Hong Kong Financial Sector appeared first on Fintech Hong Kong.

As investors increasingly seek to diversify their portfolios and capitalise on emerging trends, Hong Kong ETFs have captured the financial world’s attention, particularly in the cutting-edge sectors of crypto, blockchain, and metaverse.

Hong Kong’s ascent to becoming a leader in innovative ETFs can be attributed to its proactive approach to digital assets and its commitment to cultivating a conducive environment for fintech innovation.

The city’s embrace of cryptocurrencies and blockchain technology, seamlessly integrating them into its financial ecosystem, has garnered global recognition and established Hong Kong as a vital bridge between traditional finance and the rapidly evolving digital asset space.

As Hong Kong continues to cement its position as a global financial hub, the city’s embrace of active ETFs and its proactive approach to integrating digital assets into its financial ecosystem have set the stage for a new era of innovation and growth.

Hong Kong’s Active ETF Ecosystem

Hong Kong has established itself as a hub for active ETFs, with the city’s ETF market offering a diverse range of products across various sectors.

From money markets and virtual assets to technology and ESG investments, Hong Kong’s active ETFs cater to various investor preferences and risk appetites.

The growth of the active ETF ecosystem in Hong Kong is evident from the significant increase in their contribution to the average daily turnover of the city’s ETF market, which rose by 214 percent from 2022 to HK$16.2 million in 2023.

One notable trend in Hong Kong’s active ETF market is the surge in listings of active money market ETFs, as issuers aim to meet the growing demand from yield-seeking investors.

In 2023, four of the five active ETFs listed in Hong Kong were money market ETFs, collectively contributing HK$6.3 million to the city’s average daily turnover of ETFs.

By the end of 2023, there were 24 active ETFs listed on HKEX, with a total market capitalisation of HK$8.6 billion (approximately $1 billion).

This trend highlights the increasing importance of active management in the fixed-income space as investors seek to navigate the challenges posed by a low-yield environment and rising interest rates.

Crypto derivatives, blockchain ETFs and the Metaverse

Hong Kong’s active integration of digital assets into its financial ecosystem has significantly propelled the city’s emergence in crypto and blockchain ETFs.

The city embraced crypto derivatives with the launch of the CSOP Bitcoin Futures ETF (3066) and CSOP Ether Futures ETF (3068) in 2022, followed by the Samsung Bitcoin Futures Active ETF (3135) in 2023.

In addition to this, the city welcomed blockchain technology-focused investment products, such as the Global X Blockchain ETF (2840) in 2021 and the Samsung Blockchain Technologies ETF (3171) in late 2023.

Hong Kong’s ETF market has also adopted the metaverse theme, with the launch of Hong Kong’s first Metaverse ETF, the CSOP Metaverse Concept ETF, which began trading on February 21, 2022, Global X Metaverse Theme Active ETF (3006) and the NikkoAM Metaverse Theme Active ETF (3091/9091) in 2022.

This was followed by the Samsung Asia Pacific ex NZ Metaverse Theme ETF (3172) in early 2023. As interest in the metaverse grows, more metaverse-focused ETFs are expected to be launched in Hong Kong.

On April 15, 2024, Hong Kong granted initial approvals s to three Chinese asset managers – Harvest Global Investments Ltd., Bosera Asset Management (International) Co. Ltd., and China Asset Management (Hong Kong) Ltd. – to launch exchange-traded funds (ETFs) backed by spot virtual assets such as Bitcoin and Ether, paving the way for the city to become Asia’s first to accept cryptocurrencies.

This move allows investors to have regulated exposure to these virtual assets through the ETFs, setting the stage for Hong Kong to attract global fintech innovation and solidify its reputation as a leader in the digital asset space.

The approval process included rigorous conditions set by the Securities and Futures Commission (SFC), ensuring that the ETFs meet the high standards required for operation within Hong Kong’s financial system.

On Tuesday, April 30, 2024, the six newly launched spot bitcoin and ether ETFs — one bitcoin and one ether ETF from each issuer — began trading and saw a combined volume of US$11.2 million (HK$87.5 million), according to data from the Hong Kong Stock Exchange.

Among them, China AMC’s bitcoin ETF announced that it launched with an initial value of HK$950 million, marking the largest debut among the three issuers.

The Bosera HashKey Bitcoin and HashKey Ether ETFs introduce a unique ‘in-kind’ subscription mechanism that allows for direct subscription and redemption using Bitcoin and Ethereum, respectively. This method provides a flexible and straightforward investment process for digital asset enthusiasts and investors.

These ETFs are designed to track the CME CF Bitcoin Reference Rate – Asia Pacific Variant and the CME CF Ether-Dollar Reference Rate – Asia Pacific Variant, respectively. They aim to provide reliable benchmarks for pricing the respective cryptocurrencies.

Christina Choi, an executive director at the Securities and Futures Commission (SFC), celebrated the ETF’s introduction as a significant development in Hong Kong’s ETF market but cautioned about potential risks.

“Virtual assets are highly speculative and extremely volatile… therefore, I advise that such assets may not be appropriate for all investors,”

Christina stated at the launch event on Tuesday.

Han Tongli, CEO and CIO of Harvest Global Investments highlighted the significance of this initiative, stating that it not only meets investors’ demands for high-growth assets but also allows them to participate in the rapidly evolving opportunities in blockchain and digital assets.

The introduction of the ETF positions Hong Kong as a direct competitor to the United States for crypto investors.

HashKey Group predicts that Hong Kong’s spot crypto ETF market could grow to 20 percent of the size of its United States equivalent within a year.

Deng Chao, CEO of HashKey Capital, commented,

“The launch of these ETFs represents a significant milestone in broadening the access to cryptocurrencies, making them a more tangible part of the investment landscape.”

This regulatory oversight instills confidence in investors and demonstrates Hong Kong’s commitment to fostering a secure and reliable environment for digital asset investments.

However, despite close ties between ETF issuers and China, Chinese citizens are likely to be barred from purchasing Hong Kong’s spot crypto ETFs due to the country’s restrictive policies on cryptocurrencies.

Opportunities abound for investors and ETF issuers

The burgeoning crypto, blockchain, and metaverse ETF landscape in Hong Kong presents a wealth of opportunities for both investors and ETF issuers. 

Investors can access a diverse range of innovative products, while issuers can capitalise on the growing demand by developing new offerings that cater to investors’ evolving needs and preferences. 

Hong Kong’s supportive regulatory environment and robust infrastructure provide a solid foundation for the growth and success of these cutting-edge ETFs.

Among the three spot crypto ETF issuers in Hong Kong, China AMC – the Hong Kong subsidiary of China Asset Management – stands out as the largest player, with 15 ETFs and total assets under management of US$3.6 billion (HK$28.14 billion).

Bosera and Harvest, the other two issuers, manage US$40 million (HK$312 million) and US$16 million (HK$125 mllion) in AUM, respectively.

Industry experts, such as Bloomberg Intelligence’s Rebecca Sin estimates the city’s Bitcoin and Ether funds may amass US$1 billion (HK$7.82 billion) over two years, given a bullish market scenario.

Hong Kong’s unique advantages in the Spot Crypto ETF market

Hong Kong’s Spot Crypto ETF market is valued at approximately US$50 billion (HK$390 billion), making it 168 times smaller than that of the United States. Despite this, Hong Kong’s spot crypto ETFs offer a distinct advantage in their redemption method.

In contrast to American spot crypto ETFs, which are currently limited to cash creations, Hong Kong’s spot crypto ETFs allow for in-kind creations.

This means that ETF intermediaries use actual cryptocurrencies, such as Bitcoin, to provide funds to issuers when creating new ETF shares.

This unique feature sets Hong Kong apart and underscores its commitment to innovation in the digital asset space.

In a YouTube interview, Bloomberg Intelligence analyst James Seyffart pointed out that the ETF markets in Hong Kong and the US are not directly comparable due to size differences.

“On an absolute basis, comparing this to US launches isn’t feasible. However, on a relative basis, these were very successful for the Hong Kong market,”

James explained.

The future of investing in the digital age 

As the adoption of digital assets and the metaverse development continue to accelerate, Hong Kong’s ETF market is poised to play a crucial role in shaping the future of investing in these spaces.

By offering investors a diverse range of products that provide exposure to the most exciting and transformative themes of our time, Hong Kong is cementing its position as a leader in the global ETF landscape.

Looking ahead, the growth of crypto, blockchain, and metaverse ETFs in Hong Kong will likely attract increasing attention from local and international investors.

As more individuals and institutions seek exposure to these innovative themes, the demand for high-quality, well-regulated investment products will continue to rise.

To capitalise on this opportunity, ETF issuers must remain agile and adaptable, staying abreast of the latest digital asset and metaverse developments.

By continually innovating and launching products that meet the evolving needs of investors, issuers can help drive the growth and maturation of Hong Kong’s ETF market.

Featured image credit: Edited from Freepik

The post Why Hong Kong is Primed for a Crypto ETF Breakthrough appeared first on Fintech Hong Kong.

Leading the way in Asia, Hong Kong’s virtual banks have set a precedent for the region, demonstrating how technology can transform financial services.

Virtual banks have disrupted the traditional banking model, offering new opportunities for consumers and businesses. By harnessing advanced technology, they have optimised financial processes, reduced costs, and broadened access to banking services.

However, virtual banking in Hong Kong faces challenges. These digital entrants compete with established traditional banks that have swiftly improved their digital services.

Additionally, virtual banks must navigate intricate regulations while building trust among consumers who may be reluctant to adopt branchless banking.

List of virtual banks in Hong Kong

Virtual banks signify a dramatic departure from traditional banking. This innovation emerged prominently in Hong Kong with the issuance of the first virtual banking license in 2018.

Hong Kong boasts eight licensed virtual banks, each offering unique services tailored to different market segments.

These banks include ZA Bank, Airstar Bank, WeLab Bank, Livi Bank, Mox Bank, Ant Bank, PingAn OneConnect Bank, and Fusion Bank.

Despite their focus on technology, these banks must accept all clients, emphasising inclusivity without minimum account balances, starkly contrasting many traditional banking norms.

ZA Bank

ZA Bank co-owned by mainland online insurer ZhongAn Online P&C Insurance and Sinolink Group was the first virtual bank to soft launch in Hong Kong in 2019. It offers a variety of services, including personal and business accounts, multi-currency support, investment opportunities in US stocks, and services such as “Banking for Web3”.

Airstar Bank

A joint venture by Xiaomi Corporation and AMTD Group. Airstar Bank’s mission is to provide inclusive financial services, branding itself as the “Bank for Everyone”. It offers services to both personal and corporate clients, with features like rapid account opening processes, multi-currency accounts, and competitive loan products. It was the second virtual bank to launch in Hong Kong in June 2020

WeLab Bank

Owned by Hong Kong fintech company WeLab Limited, WeLab Bank began offering virtual banking services in July 2020. It provides a range of retail banking services for personal account users, including debit and credit cards, savings, loans, and more. WeLab Bank was the third virtual banking to open its doors to the public in July 2020.

Livi Bank

Co-owned by Jingdon Digits Technology, Bank of China (Hong Kong), and Jardine Matheson Group, started operating in August 2020 making it the 4th virtual bank to launch in Hong Kong. It offers both personal and business account services, along with virtual debit cards, loan services, and travel insurance.

Mox Bank

Supported by giants like Standard Chartered and PCCW, Mox focuses on retail banking with features like numberless cards and extensive app services. Mox Bank launched its pilot in April 2020 and subsequently fully opened its doors in September 2020

Ant Bank

Owned by Ant Group, an affiliate of the Chinese Alibaba Group, Ant Bank began offering its services in Hong Kong in September 2020. It provides both personal and business account services, with features such as dual currency accounts (HKD and USD), savings, fund transfers, and zero-cost loan applications for corporate clients.

Ping An OneConnect Bank

Ping An OneConnect Bank wholly owned subsidiary of Lufax Holding Ltd and a member of Ping An Insurance (Group) Company of China, Ltd. launched its pilot in June 2020. PAOB offers a broad spectrum of services, including business loans and savings products, backed by its solid financial technology framework. PAOB is also exploring AI and machine learning to enhance customer interactions and streamline operations.

Fusion Bank

Established in December 2020, Fusion Bank is owned by Tencent, Hong Kong Exchanges and Clearing, Hillhouse Capital and Perfect Ridge. Previously known as Infinium Limited, the virtual bank was soft-launched in September 2020, making it the eighth and final virtual bank in Hong Kong to fully launch its services to the Hong Kong public. It provides both personal and business banking accounts and is the first Hong Kong virtual bank to apply self-developed AI eKYC technology, streamlining the user application process.

What’s the difference between virtual banks and traditional banks?

The primary distinction between traditional online banking and virtual banking lies in the physical presence of branches. Traditional banks have extended their services to digital platforms while maintaining their physical locations, whereas virtual banks operate solely online.

This approach significantly reduces operational costs, allowing these savings to be passed on to customers in the form of lower fees, making virtual banking an attractive alternative for the digitally savvy consumer.

These banks are fully regulated under the Hong Kong Monetary Authority (HKMA), ensuring they meet stringent security standards and are covered by local deposit protection schemes. They are also mandated to maintain a head office in the region, ensuring a local footprint without branch networks.

Their services range from daily transactions and customer support to complex financial services; all facilitated online with robust security measures and under the protection of local government insurance schemes.

Since the initial excitement surrounding their launch has subsided, Hong Kong’s eight virtual banks have faced increasing competition from traditional banks, which continue to invest heavily in their digital banking capabilities as they strive to stay ahead of the curve.

Traditional banks have responded to virtual banks’ arrival by amplifying their digital transformation efforts to maintain their position as the preferred choice of banking service provider.

In particular, they aim to capture the younger, affluent, and digitally savvy demographic, and some traditional banks have made significant progress in this area.

There has also been a growing trend of traditional banks focusing more on their digital footprint by merging, relocating, and even closing some physical branches as customers’ needs can increasingly be met via digital means.

Even amid market challenges, virtual banks continued to see growth in the number of accounts opened in 2022, reaching 1.7 million as of October 2022. However, the growth rate was more muted than in 2021.

According to KPMG, the total number of accounts grew 42 percent from the fourth quarter of 2021 to the third quarter of 2022 (latest available data), compared to 186 percent from the fourth quarter of 2020 to the fourth quarter of 2021.

In financial performance in 2022, all virtual banks reported a loss before tax, albeit with slight improvements from the previous year’s results for six out of eight virtual banks.

Ping An OneConnect Bank and Airstar Bank had the best performance results relative to the other virtual banks, as indicated by the largest percentage decrease in loss before tax compared to 2021 (27 percent and 18 percent, respectively), while also reporting the smallest loss before tax in absolute terms. Their higher net interest margins notably drove this better performance.

The total combined gross loans offered by the virtual banks increased significantly from HK$6 billion in December 2021 to HK$16 billion in December 2022, as all virtual banks deployed more deposits into lending, evidenced by a higher overall loan-to-deposit ratio of 54 percent compared to 25 percent in the previous year.

Virtual banking products and services in Hong Kong

In 2022, most virtual banks made efforts to solidify their brand identity and market positioning. ZA Bank, WeLab Bank, Mox Bank, and Ant Bank primarily cater to the mass retail market through new products and services such as credit card statement instalment programmes.

Meanwhile, Airstar Bank and Ping An OneConnect Bank aim to capture a slice of the market for lending to SMEs, particularly those that may find it challenging to meet traditional lending requirements.

For instance, Ping An OneConnect Bank partnered with an e-commerce company to launch Trade-Connect Loan, which extends pre-approved loans of as much as HK$5 million predominantly to export-import-oriented SMEs. Such loans can help to ease the financing needs of underserved or unserved smaller businesses in Hong Kong.

Moreover, ZA Bank, with the ambition of becoming the go-to bank for Web 3.0 crypto start-ups, has recently been pushing into transfers of crypto and fiat currencies by looking to offer token-to-fiat currency conversions with licensed exchanges.

ZA Bank has also been forging a path in international transfers. In partnership with a global technology company, it has become the first virtual bank in Hong Kong to offer international transfers with no foreign exchange mark-ups or hidden fees.

Virtual banks are also venturing into wealth management and insurance, capitalising on the rising trend of online distribution of such products and services. Younger customers, in particular, value the convenience of conducting research and purchasing investment and insurance products and services with just a few clicks.

Fusion Bank, WeLab Bank, and ZA Bank obtained the necessary licenses from the Securities and Futures Commission in 2022 to start offering customers wealth management products and services, while Livi Bank followed suit in early 2023.

ZA Bank and Livi Bank were granted an Insurance Agency License from the Insurance Authority to enable them to add fee-based insurance products and services to their offerings. More specifically, ZA Bank has collaborated with a fellow group company to offer health and life insurance products to customers.

At the same time, Livi Bank has leveraged its existing partnerships and network of shareholders to launch home and travel insurance products.

Challenges and opportunities for virtual banks in Hong Kong

Despite virtual banks’ potential in Hong Kong, they face challenges in attracting customer deposits, which serve as a critical foundation for their future growth and success.

Many virtual banks struggle with customer acquisition and deposit strategies, resulting in slow uptake and low deposit levels. Account dormancy is another key issue, with an average of 55 percent of registered users inactive.

According to a report by Hong Kong strategy consulting firm Quinlan and Associates titled “Duel for Deposits: Crafting a Winning Strategy for Hong Kong’s Virtual Banks,” Hong Kong virtual banks had a combined 2.1 million customers in H1 2023. However, their customer base growth has slowed each year since their launch, from a remarkable 200 percent year-over-year (YoY) growth in 2021 to only 28 percent between 2022 and H1 2023.

The report also highlights that Hong Kong virtual banks’ deposits have sharply slowed. In H1 2023, Hong Kong’s eight virtual banks held HK$ 32.2 billion in customer deposits, increasing by just 11 percent from 2022’s HK$ 30.4 billion, against the 60 percent and 20 percent YoY growth rates recorded in 2021 and 2022, respectively.

This implies that after about three years of operations, Hong Kong’s virtual banks managed to capture only 0.2 percent of the city’s HK$ 15.4 trillion in total customer deposits.

The average deposit per customer account was also found to be lower at virtual banks than traditional banks, standing at HK$ 15,500 in H1 2023, against HK$482,600 at traditional banks.

Average deposits were not only 30 times smaller than those at traditional banks in H1 2023, but they also continued their downward trend, declining by a 19 percent compound annual growth rate (CAGR) between 2020 and H1 2023.

These weak performances can be partly explained by virtual banks’ narrower offerings and limited capabilities to address customers’ financial demands. These hurdles have led to considerable deposit attrition and prevented them from becoming customers’ primary accounts.

The research found that over 70 percent of customer deposits will leave virtual banks once promotion periods end, and about 85 percent of customers will not consider switching their primary accounts to virtual banks.

To address these challenges, virtual banks must tailor unique strategies for customers at different life stages, focusing on acquiring attractive customer segments, preventing deposit outflows, and creating new revenue streams.

Competition from traditional banks investing heavily in digital capabilities also poses a significant challenge for virtual banks.

However, opportunities for growth and differentiation exist. Some virtual banks have found early success in market positioning, catering to specific segments such as SMEs or the mass retail market.

Others are venturing into wealth management and insurance, capitalising on the rising trend of online distribution of such products and services.

Which virtual bank do Hong Kongers prefer?

In Hong Kong’s dynamic virtual banking landscape, brand recognition is paramount as consumers seek innovative financial solutions and a connection to banks aligning with their values.

According to YouGov BrandIndex data, virtual banks in Hong Kong experienced significant growth in brand equity metrics such as index score, consideration score, and ad awareness in 2023.

PAO Bank led the pack with the highest increase in index score, followed by Ant Bank and Airstar Bank. Mox Bank and ZA Bank maintained strong consideration scores, showcasing their prominence in the market.

Regarding ad awareness, Ant Bank and PAO Bank experienced considerable year-on-year growth, while Mox Bank and ZA Bank demonstrated resilience in sustaining brand visibility.

Embracing innovation and adaptability

The rise of virtual banking in Hong Kong has transformed the financial landscape, offering consumers and businesses innovative, accessible, and personalized banking experiences.

While challenges persist in attracting customer deposits and achieving profitability, virtual banks have the potential to drive financial inclusion and redefine the future of banking in the city.

As virtual banks continue to innovate, differentiate themselves, and adapt to customers’ evolving needs, they can capture a growing market share and shape the digital banking ecosystem.

By leveraging technology, data-driven insights, and strategic partnerships, virtual banks can create a vibrant and interconnected digital economy that offers users unparalleled value and convenience.

Virtual banks in Hong Kong’s path to sustainability lies in their ability to assert their brand identity, tailor strategies to different customer segments, and continuously push the boundaries of what is possible in digital banking.

As the virtual banking landscape matures and evolves, these innovative financial institutions will play a pivotal role in shaping the future of banking in Hong Kong and beyond.

Featured image credit: Edited from Freepik

The post Deep Diving into The Virtual Banking Scene in Hong Kong appeared first on Fintech Hong Kong.

Despite the overall proportion of total illicit funds shrinking by 9 percent year-on-year, criminals still handled over US$34 billion (HK$266 billion) worth of cryptocurrencies. 

While some crime categories, such as darknet drug sales, remained buoyant, the volumes of hacked and sanctions-exposed funds posted significant declines. 

These downward trends were accompanied by increased pressure from governments and law enforcement bodies. For example, the US alone tripled the number of crypto crime-linked entities and individuals subject to sanctions.

In Hong Kong, specifically, crypto scams and fraud have emerged as significant concerns, reflecting the global challenges posed by the misuse of digital currencies.

The intensified regulatory and enforcement actions are part of a broader attempt to curb these fraudulent activities, safeguarding the integrity of the cryptocurrency market.

The shifting sands of illicit crypto transactions

TRM Labs’ findings for 2023 highlight a noteworthy decline in the volume of illicit funds circulating within the cryptocurrency markets. From US$49.5 billion (HK$387 billion) in 2022, illicit volumes plummeted to US$34.8 billion (HK$272 billion), marking a near one-third reduction.

This downward trend was not isolated; it accompanied a 22 percent shrinkage in the total cryptocurrency transaction volume, suggesting a broader cooling of the crypto fervour. 

Yet, this decline in illicit transactions outpaced the overall market contraction, indicating a potential tightening of the noose around criminal activities in the digital currency space.

Sanctioned volumes plummeted

The total value of funds sent to sanctioned addresses and entities fell to US$ 16.2 billion (HK$126 billion) in 2023 from US$ 25.4 billion (HK$199 billion) in 2022.

Sanctions designations rose three-fold, from 11 events in 2022 to 33 in 2023, targeting 12 ransomware groups, six high-risk exchanges, and a cryptocurrency mixing service.

These aggressive actions by governments and law enforcement agencies likely significantly impacted the crypto crime landscape. Sanctions can disrupt the flow of funds to sanctioned entities, making it more challenging for them to access and move their illicit proceeds. 

The increased scrutiny and enforcement pressure may have deterred some criminals from engaging in certain activities, leading to the observed decline.

Hacks proceeds halved

Hack proceeds fell by over 50 percent to US$ 1.8 billion (HK$14.10 billion) from US$ 3.7 billion (HK$28 billion) in 2022.

Actors linked to North Korea, responsible for nearly a third of all funds stolen in crypto attacks, made off with 30 percent less than they did in 2022.

The reasons behind the reduction in hacking volumes are likely multifaceted. Improved security measures, such as better critical management practices and increased use of hardware wallets, made it more challenging for attackers to compromise user funds successfully. 

Additionally, enhanced coordination among industry participants and law enforcement efforts to track and recover stolen assets could have contributed to the decline.

Scams and fraud declined by 10.6 percent

Scams and fraud volumes—the total payments into addresses that TRM has connected to fraud or scams—dropped to US$12.5 billion (HK$97 billion) from US$ 13.9 billion (HK$108 billion) in 2022.

Apparent Ponzi and pyramid schemes were the largest subcategory of frauds, receiving around US$6.6 billion (HK$51.17 billion) annually.

Income generated from so-called pig butchering scams, where fraudsters employ psychological tactics to swindle victims via counterfeit investment opportunities, saw a minor decrease from US$ 4.7 billion (Hk$36.83 billion) in 2022 to US$ 4.4 billion (Hk$34.48 billion) in 2023.

The decrease in scams and fraud volumes may be linked to heightened public awareness of these schemes and enhanced regulatory oversight.

Additionally, the downturn in the cryptocurrency market could have made it more difficult for fraudsters to entice new victims.

Tron accounted for 45% of all illicit transactions

In the realm of illicit transactions, Tron (TRX) accounted for 45 percent of all such volume, marking an increase from 41 percent in 2022, with Ethereum and Bitcoin following at 24 percent and 18 percent, respectively.

Tether (USDT) emerged as the stablecoin with the highest illicit volume, reaching US$19.3 billion (Hk$151 billion), which represents 1.63 percent of its total volume.

The shift towards alternative blockchains and stablecoins may indicate that criminals seek to exploit perceived vulnerabilities or evade detection on more prominent platforms.

This highlights the need for comprehensive, cross-chain monitoring and analysis to combat crypto-enabled crime effectively.

Terrorist Financing rose by 125 percent

While terrorist groups have announced moratoriums on crypto donations, the number of unique TRON addresses that received Tether (USDT) rose by 125 percent among those campaigns that continued to accept cryptocurrency. 

Tether on TRON remains the currency of choice for terrorist financing, with three-quarters of donations being under US$500 (HK$3917).

The preference for Tether on TRON among terrorist financing entities may be driven by factors such as low gas fees, minimal price fluctuations, and perceived difficulty tracing transactions. 

However, the relatively small size of individual donations suggests that cryptocurrency may still play a limited role in the broader landscape of terrorist financing, which continues to rely more heavily on traditional methods.

The surge of illicit crypto activities in Hong Kong

Hong Kong has seen a significant uptick in crypto-related crimes, with incidents tripling over the past three years. In 2023 alone, the reported value of crypto crimes amounted to approximately 4.4 billion yuan ($611 million), highlighting this financial hub’s growing challenge.

The Securities and Futures Commission (SFC) of Hong Kong documented a stark increase in crypto crime cases, from 1,397 in 2021 to 3,415 in 2023. Additionally, the SFC has flagged 24 crypto exchanges on its ‘List of Suspected Virtual Asset Trading Platforms’, signalling concerns over platforms that may facilitate fraudulent activities.

A significant contributor to the surge in crypto crimes in Hong Kong is online investment fraud, which saw a 170 percent increase from the previous year. The complexity and allure of high returns from crypto investments have made many fall prey to sophisticated scams.

Hong Kong’s regulatory bodies and law enforcement are intensifying efforts to combat crypto crimes through enhanced surveillance, public awareness campaigns, and stringent regulatory measures.

In response, the Hong Kong Monetary Authority and the Hong Kong Association of Banks have launched the Anti-Scam Consumer Protection Charter 2.0, an initiative supported by the SFC, among other regulatory bodies, to bolster public defence against digital fraud.

However, blockchain transactions’ anonymity and cross-border nature present persistent challenges in tracking and prosecuting offenders.

High-profile cases of market manipulation and undisclosed promotional activities further complicate the regulatory landscape. One such case involves the Securities and Exchange Commission (SEC) charging crypto entrepreneur Justin Sun and celebrity backers of his crypto asset companies, Tronix (TRX) and BitTorrent (BTT).

The charges stem from the unregistered offer and sale of crypto asset securities and the illegal promotion of TRX and BTT by celebrities who failed to disclose compensation. This case highlights the broader challenges of ensuring transparency and compliance in promoting and selling crypto assets.

In addition, Google has initiated legal proceedings against persons from China and Hong Kong, accused of running cryptocurrency scams via the Play Store. Allegedly utilising 87 fraudulent apps, these scammers deceived more than 100,000 users, leading to substantial financial losses since 2019.

A turning tide in crypto crime

The reductions observed in many crypto crime categories over 2023 were welcome news, with the decline in illicit fund volumes surpassing the shrinkage of the overall crypto ecosystem. However, TRM found the share of illicit funds to be substantially higher than existing industry estimates.

Looking ahead, with cryptocurrency prices potentially reaching new peaks, criminals may find greater incentives to exploit the re-energised marketplace. Increasing geopolitical tensions could also embolden hackers and other threat actors.

Against this backdrop, vigilance and cooperation among crypto businesses, blockchain analytics companies, governments, and international bodies are more essential than ever to understanding and combating crypto crime. 

Continued investment in advanced analytics, information sharing, and coordinated enforcement actions will be crucial in disrupting cyber criminals’ activities and ensuring long-term integrity and trust in the cryptocurrency ecosystem.

While the progress made in 2023 is encouraging, the battle against crypto-enabled crime remains. Sustained and collaborative efforts will be required to reduce the prevalence of illicit activities further and safeguard the cryptocurrency industry’s future.

Featured image credit: Edited from Freepik

The post Global Efforts Curb Crypto Hacks and Fraud, But Challenges Remain in Hong Kong appeared first on Fintech Hong Kong.

As the demand for convenient, secure, and innovative payment methods grows, the city’s digital payment ecosystem has witnessed the emergence of several key players.

One such player is PayMe by HSBC, a mobile wallet that has gained significant traction since its launch in 2017. It has amassed a subscriber base of three million users, which represents approximately one-third of Hong Kong’s population.

The widespread adoption of PayMe has even led to the phrase “I’ll PayMe you” becoming a common expression in local conversations.

As Hong Kong’s digital payment market continues to expand, with Statista projecting an 8.46 percent increase from 2024 to 2028, it is crucial to understand the factors driving this growth and the role that key players like PayMe play in shaping the future of digital transactions in the city.

We spoke to Brad Jones, the CEO of PayMe, to gain insights into the evolving digital payment landscape in Hong Kong.

Differentiating strategies and merchant expansion

Brad brings a unique perspective to his role at PayMe, having previously served as the CEO of another mobile financial service provider in Myanmar.

His background has endowed him with invaluable insights, which he leverages in the bustling and digitally savvy consumer environment of Hong Kong.

“Digital payment has now become part of everyday life for Hong Kong consumers,”

Brad observed, highlighting the city’s rapid adaptation to technological advancements.

Despite the maturity of Hong Kong’s financial market, he sees a significant, untapped potential within the digital payment sector, especially regarding merchant adoption.

To navigate through the fiercely competitive landscape of Hong Kong’s digital payments, PayMe has crafted and executed distinctive strategies.

These initiatives are designed not only to stand out from the competition but also to resonate with consumer preferences, leveraging the unique blend of global experience and local insight that Brad brings to the table.

“Besides comprehensive HSBC’s infrastructure, PayMe has access to the bank’s established network of personal and corporate customers. It means that we can leverage HSBC’s resources and network to expand our customer base, which now covers over three million users,”

explained Brad.

To further grow its merchant base, PayMe has partnered with Adyen, a global payment platform, to allow its merchants to accept PayMe as a payment method for online transactions with customers in Hong Kong. PayMe now has a network of over 65,000 merchants in Hong Kong across all sectors.

Earlier this year, PayMe introduced PayMe for Business Lite in Hong Kong, allowing smaller businesses to access PayMe for Business.

Eligible local merchants can sign up for a PayMe for Business Lite wallet, regardless of their bank, and accept payments of up to HK$2 million annually.

Enhancing security and anti-scam measures

“As the top P2P mobile wallet in Hong Kong, we have a role to play in protecting our customers against fraud and security breaches. It is important to ensure that customers can enjoy a convenient and seamless payment experience,”

said, Brad.

In a move to strengthen security, PayMe has introduced restrictions on sideloaded apps for Android users, addressing vulnerabilities that scammers might exploit to monitor devices and access bank information.

This proactive measure is part of PayMe’s commitment to ensuring the security and privacy of its users’ financial transactions.

PayMe has also suspended the payment link generation function via WhatsApp to better protect customers from clicking on malicious links associated with fraud.

“Cybersecurity is becoming an increasingly critical concern across the banking and fintech sectors. In response, we have significantly stepped up our efforts and investments in developing anti-scam technologies and enhancing customer support to ensure the safety and security of PayMe,”

said, Brad.

Innovative engagement and measuring effectiveness

PayMe’s focus on innovative engagement is evident in its Augmented Reality (AR) campaigns and partnerships, such as with Taobao Tmall China Hong Kong.

“We strive to improve and innovate the service experience for PayMe users in every single touchpoint, including our advertising and marketing channels. Our growing customer base has validated the success of our customer engagement programmes,”

said, Brad.

To measure the effectiveness of these campaigns, PayMe looks at user retention and increased transaction volumes.

The growing customer base and the increasing number of merchants embracing PayMe have validated the success of the company’s customer engagement programmes.

The future of digital payments in retail

With over 60,000 retail outlets accepting PayMe, Brad foresees significant growth in digital payments within Hong Kong’s retail sector.

The COVID-19 pandemic has accelerated the growth of e-commerce, highlighting the need for retailers to adapt their payment systems to meet the growing consumer demand for seamless and secure digital transactions.

Hong Kong’s digital payments market is poised for substantial growth, boosting the market’s value to US$56.53 billion by 2028.

Despite intense competition from other wallets such as Octopus, AlipayHK, WeChat and Pay HK among others, PayMe is well-positioned to benefit from the growing reliance on digital wallets.

“To ensure that we are always at the forefront in digital payment, it is important for us to innovate our products and enhance the overall customer experience by anticipating what matters most to our customers and merchants,”

said, Brad.

Addressing the challenge of engaging the less tech-savvy population, PayMe has formed a strategic partnership with Uni-China, a leading fresh market operator in the city.

This collaboration aims to extend PayMe’s presence across Hong Kong’s traditional wet markets, enhancing accessibility for all user demographics.

This strategic move aims to serve the growing demand for mobile payment solutions among the traditionally “less savvy” population.

PayMe’s interactive mascot PayMeow

Augmented reality and other digital innovations are expected to significantly impact consumer behaviour in the long term, particularly in financial transactions and retail shopping.

The recent Augmented Reality campaign by PayMe for Chinese New Year, which featured the interactive mascot PayMeow, resulted in a 21 percent increase in the volume of e-laisees sent by users compared to the previous year.

During the first week of the festival alone, users generated e-laisees amounting to HK$2.3 million.

“Like what I said previously, Hongkongers are very adaptive to new technologies and digital payment solutions. This is proven by our recent AR Chinese New Year campaign,”

said, Brad.

Strategic vision for growth

As a leading mobile wallet in Hong Kong, PayMe’s strategic vision for growth over the next five years is to leverage its critical mass to strengthen its services further.

The company will also explore synergy opportunities with other businesses of HSBC, its parent company, to contribute to the bank’s wealth and personal banking strategy.

“Now that PayMe is already a leading mobile wallet in Hong Kong, we will see how to leverage the critical mass we have built to strengthen our services further,”

said, Brad.

We will also see how PayMe can play a part in our wealth and personal banking strategy and explore synergy opportunities with other businesses of HSBC,”

concluded Brad.

The evolving landscape of digital payment in Hong Kong

The digital payment landscape in Hong Kong is undergoing a significant transformation, with companies like PayMe playing a crucial role in shaping its future.

As consumers increasingly adopt digital payment solutions and demand more convenient and secure options, the industry must evolve and adapt to meet these changing needs.

The journey of PayMe thus far demonstrates the potential for growth and innovation within the digital payment space. By leveraging its partnership with HSBC, expanding its merchant network, and investing in advanced security features, PayMe has positioned itself as a critical player in the market.

However, the future of digital payment in Hong Kong has its challenges. As new technologies and competitors emerge, companies must remain agile and responsive to the evolving needs of consumers and merchants alike. Adapting and innovating will be critical to success in this dynamic and rapidly growing industry.

As the digital payment landscape continues to evolve, companies will need to prioritise customer-centric strategies, collaborate with key stakeholders, and invest in the development of secure and user-friendly solutions.

By doing so, they can help drive the adoption of digital payment in Hong Kong and contribute to the city’s ongoing digital transformation.

Featured image credit: Edited from Freepik

The post How PayMe by HSBC is Shaping Digital Payment Usage in Hong Kong appeared first on Fintech Hong Kong.

With over 362,000 SMEs as of the end of 2023, these entities contribute approximately 44 percent of private-sector employment and 50 percent of the city’s GDP.

Despite their substantial economic impact, SMEs in Hong Kong face considerable challenges in securing necessary credit, highlighting a persistent gap that has implications for growth and innovation.

The SME lending landscape in Hong Kong

SMEs in Hong Kong exhibit diverse financing needs, ranging from covering daily operational costs to supporting expansion efforts through trade finance or franchising.

Despite an apparent demand for credit, stagnant loan balances since 2018 reflect an under-served sector struggling with accessibility to funds.

A mix of traditional banks, virtual banks, and non-banking financial institutions (NBFIs) forms the lending landscape. Yet, operational inefficiencies and stringent lending criteria often lead to a mismatch between SME needs and available financial products.

Traditional banks like HSBC, Hang Seng, and Standard Chartered are the primary SME lenders, offering comprehensive product suites, from working capital financing to trade finance.

Six of the eight virtual banks in Hong Kong target SMEs exclusively or in conjunction with their retail offerings. PAOBank and Ant Bank are SME-focused, extending services across import/export and hospitality sectors. Livy Bank, ZA Bank, Fusion Bank, and Airstar Bank also provide SME banking.

Notable digital NBFIs serving Hong Kong SMEs, such as Qupital, Velotrade, FundPark and Zetl, are in fierce competition with more established players like UA Finance and Promise.

SME lending pain points

In-depth interviews by Quinlan & Associates highlight major operational pain points hampering the SME lending experience.

Between 2018 and 2023, only about 60 percent of Small and Medium Enterprises (SMEs) that needed credit applied for loans, and of these applicants, roughly 34 percent were either rejected or only partially approved.

This data comes from interviews with over 30 established SMEs in Hong Kong, underscoring significant operational inefficiencies plaguing the SME lending landscape.

These pain points range from the initial acquisition phase, where SMEs face challenges in navigating through opaque loan options that lack precise information on approval timelines and documentation requirements, to onboarding processes marred by the absence of fully digital procedures, leading to extended timelines due to manual operations and constant back-and-forth communications.

The loan application stage is equally burdensome, with traditional banks insisting on physical paperwork and in-branch visits, accompanied by rigorous documentation, collateral requirements, and continuous follow-ups, which protract the process.

Maintenance of loans also poses issues, as lenders often conduct semi-annual reviews that necessitate further documents and face-to-face meetings to reassess the SME’s financial standing and adjust loan terms accordingly.

In addition, the loyalty phase reveals a significant gap in customer engagement. With minimal proactive interaction beyond transactions, SMEs are more inclined to switch lenders in pursuit of better terms or services. This landscape highlights a critical need for the banking sector to address these inefficiencies and improve the SME lending experience.

A HK$170 billion missed opportunity

Quinlan & Associates estimates Hong Kong’s persistent SME credit gap at a sizeable HK$170 billion in unmet financing demand. Plugging this gap requires a fundamental rethinking of current lending practices.

While technologies like Optical Character Recognition (OCR) can help streamline processes like onboarding, structural challenges around data and documentation availability remain.

The firm believes the long-term solution lies in “algo-based lending” – leveraging partnerships with data providers to build customised SME credit scoring models capable of rapidly pre-qualifying loans.

Rather than over relying on traditional financial documentation, these models would incorporate broader alternative datasets like payment history, online reviews, mobile usage patterns, and even psychometric tests.

This enables better assessing SME creditworthiness and uncovering previously underserved segments. By pre-qualifying cluster-based SME loans using such models, approval timeframes could shrink from weeks to days while maintaining robust credit risk management.

However, this bold new approach requires lenders to rethink their SME lending strategies and operating models from the ground up.

Charting the future of SME lending in Hong Kong

The journey towards revolutionising SME lending in Hong Kong through algo-based lending presents challenges and unparalleled opportunities.

Quinlan & Associates outline a strategic roadmap for lenders to harness this potential, emphasising the importance of identifying high-potential SME segments with significant credit demand.

Central to this transformation is selecting strategic data partners possessing relevant, non-traditional datasets that can enhance credit scoring accuracy. Clear, mutually beneficial partnership models and incentive structures are essential for fostering collaboration and innovation.

Developing and rigorously testing new, cluster-specific credit scoring models promises to tailor financial products more closely to SME needs. Adapting overall strategy and operational practices to institutionalise these advancements is crucial.

While challenging, the path to a reimagined SME lending landscape powered by data and algorithms is a necessity. By embracing cutting-edge technologies and the right partnerships, Hong Kong’s lenders can finally start addressing the city’s stubborn SME credit gap and better service this vital economic segment.

Featured image credit: Edited from Freepik

The post What Does the Future Hold for SME Lending in Hong Kong? appeared first on Fintech Hong Kong.