‘Fintech is about to disrupt the banking world’: No of start-ups in Hong Kong doubles in 2015 but city unlikely to become Silicon Valley of the East anytime soon

PUBLISHED : Wednesday, 06 January, 2016, 9:00am
UPDATED : Wednesday, 06 January, 2016, 12:29pm

Hong Kong saw its total number of start-ups nearly double last year from 2014 and launched a new Innovation and Technology Bureau in November, but few expect the city to emerge as the Silicon Valley of Asia within the next 12 months.

The local government is, however, promoting fintech start-ups in a big way and these are expected to make a big splash in the coming year.

Britain’s Simon Squibb, whose company Nest launched three accelerator programmes in Hong Kong in 2015 in partnership with bank DBS, insurer AIA and car brand Infiniti, respectively, told the South China Morning Post that local entrepreneurs began to view potential markets differently last year.

“What’s changed is most of the start-ups in the last 18 months are thinking global … they’re not just thinking locally. That’s a big shift in the Hong Kong mindset,” said the entrepreneur and investor, who has been based in the city for over two decades.

Nest has invested in 53 companies since it was founded in 2010, and Squibb expects fintech entrepreneurs to do well this year as they help provide services that banks have failed to offer.

“Airbnb has disrupted the accommodation world. Fintech is about to disrupt the banking world. And I can guarantee you’re going to see some major headlines, at least around valuations in 2016,” he said.

But how much of this success will flower in Hong Kong?

The Hong Kong Startup Eco-system Report by rating firm Oddup assessed the level of entrepreneurship in the city over the last year - one characterised by increased government support for the sector as well as greater investment from big businesses in the form of accelerator programmes - and made some projections for the year ahead.

It found that Hong Kong boasted 1,558 start-ups in 2015, up 46 per cent on-year, and 3,721 employees in this field, marking a rise of 56 per cent.

A list showing some of Oddup’s highest-rated start-ups in Hong Kong

Start-up name Field Rating out of 100
WeLab Finance 80.4
CompareAsia Finance 78.8
9Gag Social media 76.0
8 Securities Finance 75.9
EasyVan Logistics 70.0
Notey Social media 69.0
Boxful Logistics 65.4
Grana E-commerce 62.4

The city also served as home to 20 local funding schemes, 34 co-working spaces and 10 incubator and accelerator schemes for young companies.

However, Hong Kong was still found to be trailing its regional peers in terms of building up a sound start-up ecosystem.

“Hong Kong is still in its infancy stage as a start-up community. Most Hong Kong start-ups only have a team size of 2.3 employees,” the report said.

“Hong Kong is not the Silicon Valley of the East and should not be viewed as such in 2016.”

Oddup’s assesment of start-up ecosystems in Asia-Pacific puts Beijing, India’s Bangalore, China’s Shenzhen, Sydney, Melbourne and Singapore ahead of Hong Kong.

But one positive note for Hong Kong is that it has a pool of “disenfranchised bankers” looking to join start-ups, as well as a growing financial technology sector that should spawn more fintech start-ups.

In autumn 2014, management consultancy firm Accenture picked Hong Kong as the first location for its fintech accelerator programme and welcomed an initial batch of 12 companies.

Singaporean bank DBS launched its own fintech accelerator in the city last year in partnership with Nest.

Meanwhile, the Hong Kong government launched a Steering Group on Financial Technologies to examine the city’s potential as a fintech hub last March.

This followed on from government body InvestHK’s long-term project to help 33 overseas fintech businesses to establish themselves in Hong Kong since 2010.

READ MORE: Hong Kong ‘ideally placed’ to become fintech start-up hub: experts

Oddup’s report singled out fintech firms WeLab and CompareAsiaGroup, which raised US$20 million and US$40 million, respectively, in 2015 as successes for the territory, helping Hong Kong to rank among its top three locations for fintech in the region.

Despite this, investment from local investors beyond the seed stage has proven scant, the report said.

James Giancotti, chief executive of Oddup predicts it will be easier for local start-ups to find funding in 2016 with the rise of the “socialite investor,” particularly from young Chinese heirs to budding fortunes who have been educated overseas.

“The young heirs to the family offices are now setting up their own venture firms,” Giancotti said. “Investing in tech is becoming a badge of honour among affluent families in Hong Kong, and is helping fuel investment in the city’s start-ups. Investment will be from seed to series B with rounds up to US$20 million invested per family office.”

READ MORE: Cloud computing firm Aliyun’s Founder Plus scheme offers support, funding for Hong Kong start-ups

Casey Lau, co-founder of StartupsHK ,which holds conferences and events for founders, investors and prospective entrepreneurs, predicts fintech companies will lead the way in 2016 with possible exits, such as being bought by a larger firm or conducting an initial public offering, drawing more investor interest to start-ups.

“This will of course affect the industry in the most obvious way : people can make money off of tech start-ups. Seeing this kind of return is what investors that have been sitting out so far have been waiting for, and you will see more local and overseas money pouring into Hong Kong and the region,” Lau said.