(Photo by Then Chih Wey/Xinhua)

OPINION – Singapore’s and Hong Kong’s FinTech scenes: complementary rather than excluding

*By Oriol Caudevilla

Consumer behaviour is changing due to the COVID-19 pandemic, thus turbocharging a financial technology revolution all over the world. Hong Kong, Macau (to a lesser but relevant extent) and the rest of the Greater Bay Area (GBA) are indeed becoming FinTech hubs, but that is also the case of other places in Asia, such as Singapore. 

While, in early November, the Hong Kong FinTech Week showed us that Hong Kong has taken it a step further, by becoming ready to move towards a fascinating new era of FinTech, the Singapore FinTech Festival, which starts today, will undoubtedly provide us with many interesting headlines and insights as well.

Even before the COVID-19 pandemic, in just two years (2017-2019), the rate of Fintech adoption among Singapore consumers almost tripled, according to the EY Global FinTech Adoption Index 2019: Singapore’s adoption rate jumped from 23% to 67% between 2017 to 2019. 

Actually, Singapore´s move towards FinTech is not new either. In 2014, Prime Minister Lee Hsien Loong announced plans to make the city-state the world’s first ‘Smart Nation’ by 2030, using technology to improve the economy and enhance the standard of living. In this sense, one of the three pillars of the Singapore Smart Nation Initiative is the digital economy.  As part of the country’s drive to efficiency and productivity, the Ministry for Communications and Information announced plans in May 2018 to digitize every business and every industry.

The Monetary Authority of Singapore (MAS), Singapore’s central bank and financial regulator, is also helping to create a ‘smart financial center’ where technology is used to increase efficiency and create more opportunities.

Undoubtedly, there is a tendency among many Hong Kong people to compare Singapore with Hong Kong in every possible way.  The apparent reason for this tendency is that Hong Kong and Singapore bear many similarities in economic structure, reliance on finance and trade, as well as size of its territory and population.

Singapore and Hong Kong have both been trying to become Asia´s FinTech center. Even though, according to industry participants and analysts, Singapore seems to be ahead as of today, having become one of the world’s leading centers for technological innovation, Hong Kong seems to be catching up remarkably well.

In some areas, Singapore is clearly winning: Singapore is one of the most important Asian countries for the crypto sector due to its regulatory-friendly environment. However, when it comes to digital banking, Hong Kong seems to be ahead right now.

I could write countless pages comparing the FinTech scene of Singapore with that of Hong Kong, but I will just focus here on one area: virtual banking. As I mentioned in “The rise of virtual banking in Hong Kong: Will Macau come next?” (Macau Business, November issue), as of today, 8 virtual banks exist in Hong Kong after having been approved by the Hong Kong Monetary Authority (HKMA), even though not all of them are already operational. These eight virtual banks are a key pillar for the coming smart banking era and are a clear example of how digital transformation has become a top priority.

Mr. Benjamin Quinlan, Chairman of the FinTech Association of Hong Kong, said that “the launch of Hong Kong’s virtual banks (VBs) is an important milestone for FinTech in the city and has set the tone for the rest of the region, who are now playing catch up.

With lightning fast onboarding times, competitively priced products, and a streamlined end-to-end customer journey on offer, the overriding response from the public has been extremely positive. Moreover, given the various challenges posed by COVID-19 with respect to more traditional in-person / branch-enabled customer servicing, the timing of their launch could not have been better. The successful arrival of the VBs will only serve to strengthen Hong Kong’s position as one of the world’s leading global financial centres”.

What about Singapore, though? As part of the first digital banking symposium held in Singapore in early November, the Singapore Fintech Association (SFA), Boston Consulting Group and Finastra unveiled their report “Southeast Asia: Coming of the Digital Challenger Banks”, in which the current status and future opportunities of neobanks and challenger banks in South East Asia is analyzed.

The report notes that upcoming Digital Challenger Banks in Singapore have a tremendous opportunity across the broader SEA region, which is set for strong economic and demographic growth in the coming decade. By 2030, the gross domestic product of Asean-5 – Indonesia, Malaysia, the Philippines, Singapore and Thailand – is projected to reach US$4.3 trillion. This will make it the world’s sixth-largest economic bloc. 

Furthermore, the Monetary Authority of Singapore (MAS) announced that up to 5 licenses would be awarded by the end of 2020. Related to this, last Friday, December 4, the Monetary Authority of Singapore announced four successful digital bank applicants in the end: two DFBs and two DWBs, being one of these two DWBs an entity wholly owned by Ant Group.

According to the MAS, the successful applicants must meet all relevant prudential requirements and licensing pre-conditions before MAS grants them their respective banking licenses. MAS expects the new digital banks to commence operations from early 2022. 

Out of the 21 applications filed, 14 of which were initially shortlisted, and 4 successful applicants were just announced by the MAS.

The idea behind these digital banking licenses is to open up the market for the benefit of lower customers’ costs and to allow underserved segments to be targeted by the new entrants. 

It is also worth noting that three Chinese tech giants were initially competing for these digital wholesale bank licenses (DWB) in Singapore: Ant Group, but also Xiaomi and ByteDance. Ant Group applied for the license alone, while Xiaomi (with AMTD) and ByteDance lead respective consortia, showing us that these digital bank licenses in Singapore are also of interest to Mainland China companies.

To sum up, even though it is considered by some analysts that Singapore´s Fintech scene is right now more advanced than that of Hong Kong, it depends on what area we analyze. When it comes to virtual banks, Hong Kong seems to have made it a step further thus far.

Nevertheless, these 5 digital banking licenses issued by the MAS are great news indeed and will strengthen Singapore´s position as a hub also for virtual banks. That being said, I have always considered that, despite Hong Kong and Singapore being compared all the time and despite being considered eternal business rivals, both financial centers are actually complementary rather than excluding, since Hong Kong is and will remain the gateway to China (as well as part of the GBA), while Singapore is mostly the gate to South East Asia.

In this sense, Mr.Chia Hock Lai, President of the Singapore Fintech Association (SFA), considers that “the FinTech sector is more complementary than competitive between Singapore and Hong Kong. Due to geographical proximity, ASEAN is the natural economic hinterland for Singapore FinTech firms, especially for B2C fintechs in payments and lending.

For certain sub sectors like WealthTech and InsurTech, which both markets project similar profiles, FinTech firms are likely to set up in both Singapore and Hong Kong, depending on their commercial priorities.”

*The author holds an MBA and a doctorate in Hong Kong real estate law and economics. He has worked as a business analyst for a Hong Kong publicly listed company and he has given seminars at HKU on Shadow Banking in China and at several universities in Macau on China´s new digital yuan.