October 25, 2016 Views

The great race to own the Fintech space….

Can Hong Kong leave its mark?

The NexChange Fintech O2O Meetup hosted its 6th event at the Cyberport in HK for Fintech and VC firms. From humble beginnings, the monthly Nexchange meetups are at near full capacity with hopeful startups, financiers and interested onlookers eager to find out more about Hong Kong’s burgeoning start-up space.

At the event, guest speaker Mr. Gordon Yen of Radiant Venture Capital said: “Hong Kong is currently less attractive fundraising market for fintech startups in Asia than China or Singapore.”  He notes the trillions of dollars under management in the city are generally not considering venture capital-style investments.

“There is a perception that there is so much money in Hong Kong and if you come here as an entrepreneur, you’re bound to get funded.  But it’s much harder than people think.”

By comparison, Singapore is throwing both public and private money to spur the development of startups and a venture capital ecosystem in the city-state.  It’s a strategy that has worked marvelously for Singapore over its 50 year history – mobilize resources into sectors where Singapore can compete aggressively throughout the region.

And…regulators in Western markets are taking notice of Singapore’s development.  This month, the UK Treasury formally announced a “fintech bridge” between both countries that allows regulators to “refer fintech firms to its counterpart… making it easier for fintechs to scale between countries.”  Essentially, fintech startups in the UK can enjoy easy access to Asia via Singapore.

Hong Kong has always taken a more laissez-faire approach, enshrined in the “positive non-interventionism” approach that has guided economic management in the city for decades.  But professional advisers are increasingly sounding the alarm that Hong Kong is rapidly falling behind  when it comes to developing a fintech ecosystem.

According to Yen, China is in a category of its own and notes that typically startups are much better funded, because they have the attitude of ‘spend first’ to gain customers and market share, all the while continuing to gain value.

Despite Hong Kong’s proximity to China, Yen hasn’t seen too many fintech startups trying to tackle the Chinese market.  “Perhaps this is due to differences in culture and regulation, but I think the business approach is also very different.”  He said.


Why should Hong Kong win the race

Certainly there are reasonable steps that the Hong Kong government will need to consider and implement, quickly, in order to attract entrepreneurs and risk-loving venture capital to the city.

Yen goes on to say: “There are many things the government can do to further support start-ups, such as developing a comprehensive register of VC investment and funding.  The Hong Kong regulatory approach is currently too basic; we recognise the public equity markets and then ‘everything else’.  There needs to be a more distinct set of regulations here.”

And Newgate Communications sees no reason why Hong Kong can’t quickly get up to speed after all Hong Kong has a critical mass in asset managementAccording to the HK Trade Development Council, total assets under management in Hong Kong reached US$2.27 trillion as at the end of 2014, while Singapore held about US$1.75 trillion.  Hong Kong’s advantage in private equity is even more pronounced: US$110bn in assets under management versus about US$68bn in Singapore.  If your start-up is for the asset management or private equity community, chances are you have many more customers in HK than in Singapore.

The other is open and independent mediaThe city is Asia’s unrivaled media center with an institutionalized commitment to press freedom.  There has always been more local and international media based in Hong Kong producing more regionally relevant content.  As a result, the region’s media industry and related technological developments are likely to stay concentrated in Hong Kong; meanwhile, entrepreneurs and investors seeking to reach the global investment community will likely need to speak with Hong Kong-based journalists.

Hong Kong is less centralized and more markets-driven in its economic development than Singapore, and this has worked to the city’s great advantage in the past and contributes to Hong Kong’s unique cultural vibrancy.

Regulators, entrepreneurs and investors will need to build on these strengths if they are to carve out a niche in Asia’s developing technology scene.



CONTACT
Richard Barton

Managing Partner, Greater China

richard.barton@newgate.asia

(852) 3758 2680

 
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The great race to own the Fintech space….