The Greater Bay Area is a new buzzword for an enduring concept: enabling commerce and contacts among the leading urban centers around the Pearl River Delta. Although Hong Kong is officially just yet another cog among multiple Greater Bay Area centers, in fintech terms, at least, it remains as distinct as ever.
Until recently, Hong Kong’s uniqueness made the Pearl River Delta region almost unworkable. Capital controls, visas, and inconvenient travel connections were operational problems, but mindset was another: finance and tech people in Hong Kong, Shenzhen, Guangzhou and elsewhere simply didn’t share dreams.
Fintech became another case in point: Hong Kong doubled down on financial services while China’s internet giants transformed their society, especially in payments. Meanwhile Hong Kong has been going through an existential shift, from being the world’s gateway to China to becoming China’s primary gateway to the world.
But it’s still a gateway. As transport links with Shenzhen and Guangzhou improve, and with a surge of mainland Chinese moving to live and work in Hong Kong, the idea of leveraging the region’s diversity to create a global superhub is no longer empty talk.
The new gateway
“The Greater Bay’s macro opportunity for finance and fintech is serving as a gateway in and out of China – but especially outbound,” said William Genovese, co-chair of the GBA committee of the Fintech Association of Hong Kong (day job: Shenzhen-based strategic planning at Huawei for I.T. solutions for financial institutions).
He argues companies in Hong Kong have a huge opportunity to help mainland fintech players scale outside of China.
But what makes Hong Kong positioned to do so, as opposed to tech or finance businesses in Singapore, London or Sydney?
“You’ve got a huge amount of tech talent and hardcore engineering skills in mainland China,” said Marcus Chow, partner at KPMG. “People in Hong Kong understand how foreign markets work. They have a lot of experience dealing with different regulators.”
This combination of hardware and software makes the GBA unique in fintech
Within the GBA, Hong Kong is a world-class financial center; Shenzhen is the world’s leading innovation engine for hardware technology. As artificial intelligence, blockchain and the Internet of Things permeate financial services, there is a need to integrate hardware, software, financial know-how, and startup culture.
“This combination of hardware and software makes the GBA unique in fintech,” Genovese said. (He is helping lead a project to map the GBA’s fintech centers, which will be released during the Hong Kong Fintech Week.)
Pindar Wong, an internet pioneer who introduced the first licensed Internet Service Provider to Hong Kong in 1993, says digital transformation of the world economy will create new opportunities for Hong Kong, due to its unique status as being inside China while retaining rule of law.
“Shenzhen has a maker mindset,” he said, referring to the tech-based DIY culture. “As manufacturing goes digital in design, fabrication, shipping and data, it will create a need for on-demand payments and smart contracts based on the rule of law.”
He is skeptical of a lot of incremental, B2B fintech. Hong Kong is a finance town, and blockchain, WeChat-style digital payments and other innovations will render middlemen increasingly irrelevant. What it has, though, is an open culture, an open internet, and common law.
“Hong Kong needs to be clear about its value proposition and identity,” Wong said. “It’s value is as a mixing pot.” He is working on a project to digitize Hong Kong law, leveraging its legal expertise to extend rule of law into borderless realms such as crypto-currency.
Straddling the border
Although China’s confident internet companies make it a hard market for outsiders to penetrate, the GBA does offer a jumping off point to target its vast domestic market. One Hong Kong fintech company that’s succeeded at this is WeLab.
“Hong Kong is a good place to start because of its stable legal framework,” said Tat Lee, one of its co-founders and head of its Hong Kong business, WeLend. That business was founded in 2013, but quickly thereafter WeLab set up a separate operating unit in Shenzhen to provide unsecured loans. WeLab is therefore not only one of Hong Kong’s first fintech success stories but also a rare example of one leveraging the GBA.
Hong Kong needs to be clear about its value proposition
Lee says bankers and lawyers in Hong Kong understand financial markets, risk management and how to manage through economic cycles. “We can help build a business in China,” he said. And Shenzhen is so convenient – Lee’s commute to the office there is shorter than his one to the Hong Kong site – and the culture similar enough that it makes a good springboard, into Guangdong Province and China at large. Today, WeLab serves 32 million customers, of whom 80% are from parts of China beyond the Greater Bay Area.
Now WeLab is building off the connections it’s made in Shenzhen with major internet companies to help them expand across the region.
The new fintech story
Business culture in Hong Kong remains wedded to its pragmatic, “fast follower” tradition. This may not be helpful when it comes to fintech, which requires a degree of imagination and courage. Chinese startup culture, on the other hand, has a try-anything creativity that doesn’t always match reality (think compliance).
Hong Kong’s government and regulators, having woken up to the vast changes that technology has wrought in mainland China, have responded with measures to put the city at the forefront of fintech.
The Hong Kong Monetary Authority has just introduced its Faster Payments System, and is expected to hand out its first license this year for virtual banking. InvestHK and other agencies have supported fintechs with offices and subsidies.
There are limits: culture, politics, regulation, capital controls. Sometimes innovation in one place remains localized. Take Bank of China (Hong Kong)’s blockchain project for mortgages: this is a success in Hong Kong, but legal and other barriers mean it won’t be adopted by Bank of China in the mainland, which has its own tech initiatives.
Hong Kong is a good place to start because of its stable legal framework
Talent is a challenge in all parts of the GBA. Kalok Chan, dean of the business school at City University of Hong Kong, says the fast development of fintech has left banks and tech companies desperate for good people. Universities such as City U. have responded by inaugurating fintech programs, providing financial training to engineering students.
Talent follows more than just money: it wants exposure, opportunities, and success stories. Running operations both in Hong Kong and Guangdong is not easy. But companies in both Hong Kong and Shenzhen, in particular, are uniquely positioned to let their employees benefit from the expanding flow of people and ideas throughout the area. The GBA is no longer just a slogan. It’s cohering into a fintech story. It could become a juggernaut.
This story was sponsored by InvestHK.