A Discussion with Charles d’Haussy, Head of Fintech, InvestHK.
Hong Kong has been a definitive leader in global finance and trade for many decades. Yet when it comes to Fintech, embracing financial innovation has been slower than some other centers of alternative finance. But recently Hong Kong has reinvigorated its strategy and is now on a path to become a leading regional Fintech Hub.
As part of this initiative, Charles d’Haussy was appointed as Head of FinTech at Invest Hong Kong (InvestHK) in September 2016. His team is responsible for helping overseas and Mainland Fintech companies to establish or expand their business presence in Hong Kong. d’Haussy leads campaigns to promote Hong Kong as the premier Fintech Hub and attract best and brightest companies in the industry.
d’Haussy has spent over 13 years in the private sector of Hong Kong so he knows the country and policy landscape exceptionally well. Crowdfund Insider recently corresponded with d’Haussy regarding Hong Kong’s resurgence in the Fintech space. Our discussion is below.
Crowdfund Insider: How did you find yourself engaged with InvestHK?
Charles d’Haussy: I have been Head of Fintech at InvestHK since September 2016. I’m French and I started my career in Hong Kong 13 years ago. Early in my career, I saw the fantastic opportunities that in exist in Hong Kong and China when setting up my own company. I later also worked for a leading online broker and digital wealth platform aimed at Hong Kong and Japan.
I am enjoying the opportunity of heading the dedicated Fintech team at InvestHK. My team helps overseas and mainland Fintech companies to establish or expand their business presence in Hong Kong through our free, confidential and customised services. We are also responsible for organising international events to promote Hong Kong’s Fintech ecology and attract the best and brightest.
Last year, we organised the inaugural Hong Kong Fintech Week in November to look at the latest trends in Fintech. It included exciting pitching sessions, demos, workshops and networking events. Fintech Week provided a perfect demonstration of global Fintech fusing with Hong Kong’s unique advantages. The week attracted more than 2,500 participants and an array of international Fintech companies and start-ups looking to grow their business, as well as accelerators, incubators and investors searching for opportunities and innovation.
This year’s Fintech Week will start on October 23 to accommodate an expanded programme of events and activities that will highlight the distinctive and dynamic qualities the city offers the global Fintech community. Key themes ranges from start-up funding to IPO, China Fintech, Blockchain and artificial intelligence, cybersecurity, Regtech, Insurtech and Wealthtech, plus Belt & Road. Hong Kong Fintech Week will have the active involvement of the local regulators and private sectors, while the city’s Fintech accelerator programmes will also come under the spotlight.
[clickToTweet tweet=”Charles d’Haussy, Head of #Fintech at @InvestHK explains why Hong Kong is the place for innovative finance” quote=”Charles d’Haussy, Head of #Fintech at @InvestHK explains why Hong Kong is the place for innovative finance”]
Crowdfund Insider: The Hong Kong Government is now moving quickly to assert Hong Kong as the dominant Fintech Hub in the region. What are some of the most important initiatives? What type of resources and funding is the Hong Kong Government dedicating to Fintech innovation?
Charles d’Haussy: It is quite a commonly-held perception that the development of Fintech in the financial services sector in Hong Kong has been slow – however we do not concur as far as the banking sector is concerned. Many banks have been actively participating in the research and application of the latest biometric identification technology, such as fingerprint, facial and voice recognition, as well as distributed ledger technology.
On the public sector, local financial regulatory bodies, Hong Kong Monetary Authority (HKMA) the Securities and Futures Commission (SFC), the Stock Exchange of Hong Kong (HKEx) and others are actively updating policies and processes to support Fintech industry growth, including adopting financial innovations as they come along.
- HKMA’s supervisory principles are “risk-based” and “technology-neutral”. Last year, the HKMA issued a total of 13 licenses to stored-value service providers. In addition, the HKMA also introduced a Fintech Innovation Hub and a Fintech Supervisory Sandbox to enable pilot trials of authorised institutions in order to review their innovative products before official launch.
- HKMA is developing a new Faster Payment System (FPS) which will provide a round-the-clock inter-bank real-time payment platform allowing banks and stored value facilities (SVF) service providers to offer their customers faster, more convenient and comprehensive payment and fund transfer services.
- HKMA has also recently unveiled a trade finance platform based on blockchain technology, which was supported by Deloitte and five of the city’s top banks. The project has resulted in the design and development of a proof of concept leveraging blockchain to create a platform for banks, buyers and sellers and logistics companies. This proof of concept has explored the implications of blockchain from the dimension of operations, legal, regulatory, governance and data security.
- SFC has established the Fintech Contact Point to facilitate the Fintech community’s understanding of the current regulatory regime, and to enable the SFC to stay abreast of the development of Fintech in Hong Kong. SFC has also initiated an internal RegTech project to actively assess technologies that it can adopt to supplement its standing operations, more intelligently analyse and manage data, address regulatory challenges, as well as combatting money laundering and cyber risk. For instance, the regulator is gearing up to issue operational guidelines on new digital fund sales platforms (including robo advisors) very soon, to prevent them from operating without a licence or proper authorisation. This will help reduce risks for investors, and ensure that due diligence, KYC and suitability regulations are properly followed.
- In February this year, HKEx announced its plan to adopt blockchain to keep track of all private investors in start-up companies in a new Hong Kong private market. In addition, HKEx has just kicked off the public consultation of setting up a third board with more flexible rules to attract tech firms. HKEX’s key targets ahead will be technology start-ups, mainland firms looking to expand overseas, Belt and Road Initiative-related companies.
- HKMA and ASTRI have launched the Fintech Career Accelerator Scheme (“FCAS”) to nurture the talent needed to meet the growing needs of Fintech in Hong Kong. FCAS is supported by 11 banks and 9 universities and will provide internships for undergraduate and postgraduate students interested in a career in the Fintech industry.
- Beginning from the 2017/18 academic year, The Chinese University of Hong Kong will offer Bachelor of Engineering Programme in Fintech, while The Hong Kong Polytechnic University will offer Bachelor of Science in Fintech; both of which are a dedicated publicly-funded degrees in Fintech at our local universities.
[clickToTweet tweet=”The Hong Kong government has announced a series of supporting funds to boost start-ups & #Fintech” quote=”The Hong Kong government has announced a series of supporting funds to boost start-ups & #Fintech”]
Funding & Resources
- In terms of resourcing and funding, the Hong Kong government has announced a series of supporting funds and schemes in the 2017-2018 budget policy address specifically for start-ups and Fintech. Key initiatives include setting up a new committee on Innovation & Technology (I&T) development and re-industrialisation; and extending the Public Sector Trial Scheme to include the incubatees of two important incubators – the Hong Kong Science and Technology Park and Cyberport since the end of last year. The latter scheme will provide each eligible project with a maximum subsidy of $1 million, seeking to encourage the public sector to conduct trials on the start-ups’ products and services.
- Also, a new HK$2 billion Innovation and Technology Venture Fund will be launched to help bridge the funding gap for technology start-ups. It will jointly invest with VC funds in local innovation and technology start-ups to create a more vibrant ecosystem in Hong Kong.
- In December 2016, HKMA and the UK Financial Conduct Authority (FCA) signed a Cooperation Agreement to foster collaboration between the two authorities to promote financial innovation. The HKMA and the FCA will closely collaborate on a number of initiatives such as referrals of Fintech firms, joint innovation projects, information exchange and experience sharing.
- In June this year, SFC and Australian Securities and Investments Commission (ASIC) signed a co-operation agreement for financial innovation. The agreement will enable the SFC and ASIC to refer Fintech firms to each other for advice and support via ASIC’s innovation hub and its Hong Kong equivalent, the SFC’s Fintech contact point.
Looking ahead, Hong Kong and China will work closely to complement each other’s strengths. Hong Kong offers a global hub of finance, transport and trade, with world-class university research centres, global funds and an international talent pool. With these, Hong Kong can provide Chinese companies with a full suite of professional services, based on cross-border experience, mature financial infrastructure and global standards. One example is the Hong Kong-Shenzhen agreement to jointly develop the Lok Ma Chau area. Fostering innovation in this area is especially significant, in line with Hong Kong’s “One Country, Two Systems” double strengths and a prime example of a win-win in Hong Kong and Shenzhen’s start-up development. Hong Kong can also support the Belt and Road initiative by using Fintech, such as blockchain to promote inter-country collaboration.
Crowdfund Insider: What about Singapore? They are leaders in the region in many respects. What are the competitive advantages that make Hong Kong superior as a Fintech Hub?
Charles d’Haussy: Hong Kong surely has its unique competitive edge to be the global and regional Fintech hub over other cities. Comparing to Singapore, Hong Kong has a much bigger Stock Exchange market than Singapore – with 126 companies listed and US$24.53 billion (HKD 194.8 billion) raised last year. The city has a huge and well-established financial services industry with 157 banks and over 600 stock brokers, more than USD2 trillion assets are under management in Hong Kong. That provides a huge market for Fintech companies which looking to act as third-party suppliers to incumbents, as well as a ready supply of talent with financial services skills. These two factors increase the appeal of Hong Kong to foreign B2B Fintechs looking to expand internationally, as well as providing an attractive environment for domestic Fintechs.
The city is in the unique position of being known as the super-connector to China and beyond. In terms of total users and market size for Fintech, China leads the world in the midst of China’s Fintech boom across all different types of banking services. Being the largest offshore Renminbi Hub, Hong Kong is also relatively easy for Western firms to expand to the city, thereby creating an attractive stepping-stone location for firms looking to enter China. Initiatives have also been developed aimed at making access to the Chinese market easier. Moreover, Hong Kong also offers rule of law, low and simple tax regime, world-class business infrastructure, IP protection mechanism and a strong legacy of trade and work ethic. Meanwhile, Hong Kong is also a fantastic launch-pad for China, with two thirds of mainland companies taking their first step outside the People’s Republic to Hong Kong.
Free flow of information, transparent and low taxation are usually quoted by business as the top reasons to set up in Hong Kong. Besides, the government adopts a hands-off approach and does not directly invest in companies, allowing business free and encourages innovation. Here are some rankings demonstrating the tremendous business opportunities Hong Kong offers to Fintech start-ups:
- No. 1 in World’s Freest Economy
- No. 1 in IMD World Competitiveness Scoreboard
- No. 1 in Global Fintech Investment (China & Hong Kong)
- No. 1 in EY Fintech Adoption Index
- No. 1 in Smartphone Penetration in Asia
- No. 2 in Global FDI Inflows
- No. 3 in Ease of Doing Business
- 82% of Hong Kong financial services organisations are looking at partnerships with Fintech companies according to survey conducted by PwC
Crowdfund Insider: What areas of Fintech do you see the most opportunity? Any predictions for 2018?
Charles d’Haussy: In terms of upcoming Fintech areas we see the most potential in for 2018, here are some highlights we’d like to share from our observations:
- Cyber Security: Advanced technology won’t break the foundation of finance – security and trust. Cyber security helps Hong Kong grow its assets in Fintech, while ensuring that the market stays safe.
Blockchain: Hong Kong has a strong telecommunications industry and has attracted some major cloud service companies from both the US and mainland China. As mentioned, the HKMA recently unveiled a trade finance platform based on blockchain technology. This is potentially ground-breaking, and shows real commitment of Hong Kong to use Fintech for the benefit of the market and consumers.
- Insurtech: Hong Kong is home to a large insurance market and many insurance companies are tapping the latest technology and innovation. They are looking for the best and brightest insurance technology practitioners from around the world. Therefore, InvestHK aims to engage with Insurtech companies from the US, from Europe, from mainland China, so they will come here and start a business or expand a business in Hong Kong.
- Regtech: Just as it does with Insurtech, InvestHK is engaging with the best and brightest Regtech practitioners and researchers from across the globe to make sure that we have in Hong Kong a fundamental and strong practice in regulation technology. Moreover, the University of Hong Kong happens to have one of the best research departments in the world dedicated to technology regulation. KPMG also stated in its “The Pulse of Fintech Q1 2017” report that RegTech activity in Hong Kong shows signs for growth in coming quarters.
- Wealth Management: The wealth management market in Hong Kong has an estimated US$2.3 trillion in assets. Helping to spur growth in the wealth management industry, Hong Kong offers clear and straightforward regulations, for example, on robo-advisors and the distribution side of wealth management.
- Artificial Intelligence (AI): With a projected market value worldwide of US$36.8 Billion in 2025, real breakthroughs in AI are happening, transforming business. AI has the potential to revolutionise nearly all aspects of financial services by increasing efficiency, reducing costs and helping clients make better financial decisions. As a major investment management and insurance centre, Hong Kong is already heavily involved in the application of technology in related areas, particularly computerised trading and investment management. There is much greater potential for tools like automated advice (robo-advisory), big data and AI to impact on the broader financial industries, especially on insurance and banking. Banks and financial institutions are proactively exploiting the technology to include it as part of the modern financial strategy.
Crowdfund Insider: What about capital formation and investment platforms (IE investment crowdfunding, real estate marketplaces etc.). How is this sector performing in Hong Kong?
Charles d’Haussy: As an international financial centre, risk and asset management centre and the largest offshore RMB centre in the world, Hong Kong can act as a capital formation and financing platform. Hong Kong has a mature and stable capital market, leading Asia in private equity especially, offering companies comprehensive financing options with the ability to attract worldwide investors. For example, China and Hong Kong alone accounted for US$10.2 billion, or 91 percent, of Asia-Pacific’s $11.2 billion in Fintech investments in 2016.
Also, Hong Kong has been among the world’s most favoured destinations for initial public offering (IPO) over the past two decades. According to Thomson Reuters data, Hong Kong was the world’s largest IPO market by value last year, raising US$24.53 billion (HKD 194.8 billion), with 126 companies listed. The recent launch of the Shenzhen-Hong Kong Stock Connect allows investors to fully connect to China’s two stock markets. This will help further promote the internationalisation of RMB on one hand and reinforce Hong Kong’s leading position as an international financial centre and the premier offshore RMB hub on the other.
Besides the traditional IPO and debt markets, Hong Kong actively develops diversified financial products and platforms. What’s more, local financial regulatory bodies, HKMA, SFC, HKEx and others are actively updating policies and processes to support Fintech industry growth. In February this year, HKEx announced its plan to adopt blockchain to keep track of all private investors in start-up companies in a new Hong Kong private market. In addition, HKEx has just kicked off the public consultation of setting up a third board with more flexible rules to attract tech firms. HKEX’s key targets ahead will be technology start-ups, mainland firms looking to expand overseas, Belt and Road Initiative-related companies.
Crowdfund Insider: Can you quantify the Hong Kong Fintech market today?
Charles d’Haussy: Hong Kong has a huge and well-established financial services industry with 157 banks and over 600 stock brokers. That provides a huge market for Fintechs looking to act as third-party suppliers to incumbents, as well as a ready supply of talent with financial services skills.
These two factors increase the appeal of Hong Kong to foreign B2B Fintechs looking to expand internationally, as well as providing an attractive environment for domestic Fintechs. Below chart shows how Hong Kong stands in the APAC Fintech financing market.