HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

The report highlights that fintech innovations have been applied widely across all financial services by incumbent banks. The incumbent banks have made tangible efforts to apply financial technologies and intend to apply them to a greater extent in the future. Overall, the incumbents view fintech more as an opportunity than a threat to their business operations, now and in the next five years. Notably, a higher percentage of the incumbent banks see fintech as presenting opportunities across all financial services in the next five years. Although it may appear premature to evaluate the effectiveness of fintech adoption, there are already some early signs of payoff, with more than a third of the incumbent banks stating that their prime objectives of adopting fintech have been met.

With respect to the challenges facing banks, about three quarters to over 80% of the incumbent banks rate “difficulties in ensuring information security, data privacy, and protection,” “difficulties in retaining and attracting the right talents,” and “regulation related to Fintech evolution,” as either important or very important challenges to their fintech development, while about two-third of the incumbent banks rate “difference in regulatory standards across different jurisdictions” and “legacy IT systems” similarly. Among the incumbent banks, a larger share of the respondents from the foreign bank group considers “difference in regulatory standards across different jurisdictions” as important or very important than respondents from the retail bank group. These challenges are not specific to Hong Kong and can also be seen in the banking industries of other economies. To deal with some of these hurdles, policy makers could have a role to play. 

The report mentions that preliminary research suggests that the adoption of fintech may have produced some positive effects on banks’ performance. Most banks take either a “proactive adopters” approach to achieve first mover’s advantage or a “reactive adopters” strategy where transformational changes are implemented at a steady pace. The pace and degree of fintech adoption will, however, hinge on whether the above-mentioned challenges can be overcome. HKMA has introduced several initiatives with the aim of addressing some related issues. It has also provided a number of guidance and recommendations to the banking industry related to fintech applications, in view of the evolving regulatory landscape. Virtual banks generally expect a bigger impact of fintech on traditional banking services and a more dramatic change in the structure of Hong Kong’s banking industry. If banks’ views are any guide, precautionary preparations for more dramatic changes in Hong Kong’s banking industry structure, such as strengthened monitoring on the fintech development as well as increased cooperation with different authorities responsible for oversight of regulatory functions related to fintech, may be warranted.

Keywords: Asia Pacific, Hong Kong, Banking, Fintech, Fintech Innovation, HKIMR, HKMA