The Case for Adopting Fintech Innovations in Hong Kong
Many banks in Hong Kong’s financial services industry have reaped first-mover advantages such as improved cost efficiency and profitability. We examine the building blocks of their success and explore potential roadblocks and challenges other banks are facing.
3 March 2021
Over the last decade and especially as the pandemic emerged, a wave of fintech innovations has promoted and accelerated digitalization and the emergence of new technology solutions in the global financial sector. In Asia-Pacific (APAC) and its key financial hubs like Hong Kong, where banks and their customers tend to be more tech-savvy, a critical advantage for staying on top of the competition is the continued adoption of financial technologies.
A 2020 research report revealed that most banks in Hong Kong describe themselves as adopters instead of followers. Rather than waiting for new technologies to move into the maturity stage, many of them take a proactive approach to reap first-mover advantages; such as improving operational and cost efficiencies. This comes as no surprise as Hong Kong’s banking industry is built on a strong technology foundation. However, as they advance in the pursuit of fintech development, banks are facing key challenges, including data privacy and protection, and legacy IT systems, all of which have a significant impact on the pace and level of fintech adoption.
An alternative strategy for fintech adoption
In the face of these challenges, an increasing number of banks are turning to third-party SaaS solutions for use cases such as vendor risk and third-party risk management. Compared to the time and investment it takes to build, develop and maintain a platform in-house, these solutions are efficient and can be deployed faster. They also allow financial institutions to leverage external technical expertise and emerging technologies such as artificial intelligence (AI), which has already passed the stringent vetting process of major banks worldwide. In Hong Kong, an average of over 90 percent of the banks surveyed in the HKIMR report revealed their institutions had opted for this strategy.
SaaS solutions for vendor risk and third-party risk management
Today, secured data transfers are no longer optional regardless of the industry or business size. Banks understand how important it is to securely exchange customer data and collaborate with third parties such as government and regulatory bodies, external agencies, legal and professional services firms on sensitive information. This accelerates the use of SaaS providers, like Intralinks, for their vendor and third-party risk management solutions. Some of the benefits of these solutions are:
- Simplified file sharing and collaboration using secure virtual data rooms (VDRs)
- Risk management and data leakage prevention through improved document and information flow controls, and blocked access to removable storage media such as USB sticks and external hard drives
- Easy integration with enterprise Governance Risk & Compliance (GRC) systems and readiness for the ever-changing demands of the regulatory environment
While banks work to ensure their infrastructure is fit for the challenge, the Hong Kong Monetary Authority (HKMA) is also working to cope with the fast-evolving global cybersecurity landscape. At the beginning of 2021, an upgrade of the Cybersecurity Fortification Initiative (CFI) scheme, which the banking industry has widely supported since its launch in 2016, came into effect to strengthen the cyber resilience of banks in Hong Kong.
The way forward
Is your organization an adopter or a follower in fintech strategy and implementation? In Hong Kong, banks that take an adopter approach exhibit signs of payoff. This is in part a result of the regulators' commitment to supporting continued innovations in financial technology. In a world where customer and regulator digital expectations are changing, a bank’s fintech strategy is a key success factor in operational excellence.
Jenkins Fung is the team lead of Advisory and Corporate Development. He's dedicated to supporting investment banks and law firms in Hong Kong, Macau and Taiwan. Jenkins works with clients on improving cross-enterprise collaboration and securely facilitating company sales, M&A and capital raising in the early, preparatory phase through due diligence, ultimately leading to successful execution.