Beijing’s sovereign digital currency push to boost Hong Kong’s fintech start-ups
- A bridge project between PBOC and HKMA could lead to opportunities for the more than 3,300 start-ups in Hong Kong
- Fintech needs to be where the financial hubs are, and if you are not in Hong Kong then there are only a few remaining options, says InvestHK’s fintech head
As Beijing pushes ahead with a sovereign digital currency and a national blockchain network, Hong Kong’s fintech community is using the city’s role as a bridge between mainland China and the rest of the world to seize opportunities for innovation.
The project could lead to opportunities for the more than 3,300 start-ups in Hong Kong, allowing them to service importers and exporters using fintech. It could provide incentives for innovation in fintech and trade finance solutions, said King Leung, head of fintech at InvestHK, the government body promoting foreign direct investment.
“For fintech start-ups focusing on business-to-business solutions, there are only a handful of major cities that have a strong base of financial institutions,” said Leung. “Fintech needs to be where the financial hubs are, and if you are not in Hong Kong then there are only a few [remaining] options.”
Through a partnership with Tradelink, a trade and custom documents filing service provider, Ping An OneConnect has introduced an SME loan service that approves loans within five days. The new service leverages Tradelink’s decades of custom clearance data to determine a borrower’s credit health.
“The next step is to get all the stakeholders in trade to get digitalised as well. These include all the shipping companies and logistic players,” said Vishal Kapoor, Citi’s Hong Kong head of treasury and trade solutions. “It will happen over time.”
This is because the city’s virtual asset regulatory regime, which bans participation by retail investors and allows only professional investors, is considered restrictive. This could stifle entrepreneurs’ desire to innovate in Hong Kong, said Alessio Quaglini, CEO of Hong Kong-based digital asset custodian Hex Trust.
“If you have a framework with requirements that are cumbersome and stringent for young fintech companies, there is a risk that Hong Kong might start losing business activity to other markets that are aggressively trying to win them,” said Quaglini.
A professional investor is defined under Hong Kong securities law as someone with a portfolio of at least HK$8 million (US$1 million). The Singapore regime for payment tokens does not have a ban on retail investors.
In August, Hex Trust received its capital markets services licence from the Monetary Authority of Singapore, which allows it to expand its custodial service to the city state. The new licence is in addition to its trust or company service provider licence obtained in Hong Kong.
“There is still a lot of wealth in Hong Kong. If a start-up just focuses on servicing professional investors, by dollar amount this is already a sizeable market,” he said.