Hong Kong and Singapore have a long history when it comes to competition, particularly with regard to Fintechs. Yes, Hong Kong has a strong reputation as Asia’s main financial place. What people often say, however, is that Singapore runs ahead of the competition in terms of innovation and services offering.
In 2018, nonetheless, the Hong Kong Monetary Authority has taken steps to improve its position. At the beginning of the year, it released a consultation paper related to virtual banking promotion, as well as another consultation document touching upon the issue of Open APIs. And, over the summer, the respective frameworks were eventually disclosed.
In both cases, the goal is to further develop the financial industry of Hong Kong, of course. But the City’s Fintech agenda is very much at the heart of these initiatives. In late 2017, the HKMA had indeed announced that Hong Kong would now enter into a new era of smart banking, and these initiatives are clearly aligned with this ambitious project.
Having said this, would these steps help Hong Kong with its innovation race against Singapore? Not really.
The Virtual Banking initiative could give Hong Kong an edge.
First, the virtual banking initiative is interesting because it will bring some financial innovation to Hong Kong.
Facilitated access to banks will solve a major problem in a city in which under banking is a problem for many. But by opening virtual banking licenses to non-bank investors, the decision is also likely to give an investment boost to the financial services industry. Especially because investors from Mainland China will have a major reason to consider Hong Kong as a new business playground.
The move also gives an edge to Hong Kong over Singapore, because Singapore’s virtual banking market is currently very limited, too. This is especially true when making a comparison with other countries in the region where virtual banks are progressively emerging. For instance, virtual banks are being developed in China, India, Indonesia, and Thailand, not to forget Vietnam, Japan, and Korea where ‘neobanks’ are blooming. But in the two leading financial cities, the developments are so far invisible.
To this extent, the regulatory opening could help to create a springboard for Hong Kong’s financial industry. In fact, around 50 companies expressed their interest in such a scheme, so chances are that the licenses granted to the selected applicants might rapidly make Hong Kong a regional leader in virtual banking.
The rather complex issue of the Open API Framework
The second major development for the summer was the release of the HKMA’s Open API Framework.
Here, the idea is also to further promote Hong Kong’s financial services and Fintech industry, but the mechanism is obviously different. Instead of facilitating the creation of banks, the Monetary Authority is supporting the rise of third-party applications.
To focus on the headlines, the Framework is providing deadlines for banks to open their databases to third parties, which will then be able to create a variety of applications. For instance, personal wallets, pricing comparisons, or even the development of wealth management applications connected directly to the users’ personal bank accounts.
Problematically, the Open API Framework is unlikely to give Hong Kong an edge over Singapore.
First, the mechanisms to be put into place seems somehow complex.
While the banks asked for standards and a central body for the certification of Third-Party Providers (TSPs), the Monetary authority has ignored their demands. For the sake of flexibility, the Open API Framework has left the banks in charge of creating their own standards and has also given the responsibility for managing third-party providers. Said differently, the banks will have to manage. And they could accordingly have problems reaching uniform standards and good practices.
Second, the reality is that despite this regulatory push, Singapore is well ahead of Hong Kong as far as Open APIs are concerned. In fact, the Monetary Authority of Singapore (MAS) and the Singapore Association of Banks released a ‘Finance-as-a-Service: API Playbook’ in November 2016 in which 400 API were identified and categorised. Of course, some aspects are left unconsidered in this document (such as the certification of TSPs) when they are considered in Hong Kong’s piece. Nonetheless, with two years of technology development behind, Singapore is well ahead.
Singapore and Hong Kong remain the enemy sisters
This suggests that, despite recent regulatory efforts, 2018 is unlikely to make a significant difference in the innovation race which opposes Hong Kong and Singapore.
On one hand, Hong Kong is likely to step ahead in relation to virtual banking because the new framework will attract significant investment from financial services providers. On the other hand, Singapore remains far ahead on the Open API side of things.
All things considered, however, chances are that 2018 could remain a fruitful year for Hong Kong’s Fintech agenda. To be continued.
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