Hong Kong and Singapore face off over fintech

Asia’s key wealth management centres of Hong Kong and Singapore have entered a new phase of their traditional rivalry. Previously this centred around competence and capacity of the top private banks. But the landscape has changed to one where technology is now the prime battleground.

“Keeping the market open and organic growth of the ecosystem are key to our progress,” says Charles d’Haussy, head of fintech at Invest Hong Kong, a department of the Special Administrative Region’s government.

He poses a major question hanging over the wealth market: should client interaction be driven more by technology or personal contact?

Few banks are making the running in digital technology. Singapore’s regional champion, DBS, is one key exception in Asia. Korean banks are also seen as market leaders and Credit Suisse has been more innovative in Asia than Europe.

“Artificial intelligence is moving too fast for many banks,” admits Mr d’Haussy, who developed robo-advisers for the Hong Kong market in a previous role several years ago.

Banks were reluctant to adopt these technologies because they would reduce profit margins. “It was a very hard sell, talking to wealth managers running businesses making 200 basis points, when our platform allowed them to charge customers just 25 basis points,” he recalls.

The fact that much Asian wealth is still managed on behalf of an older generation also means only a small vanguard of banks have bothered to make the leap into a new technologically-enabled world. 

Where Hong Kong will succeed, believes Mr d’Haussy, is in its ability to act as springboard to the Chinese mainland. Shenzen, one of the world’s fastest growing cities and start-up hubs, is now just 14 minutes away from Hong Kong via the highspeed train .

In the new partnership being forged in China’s Greater Bay Area, Hong Kong represents the financial expertise of New York, and neighbouring Shenzen mirrors the technical innovation of  Silicon Valley, says Mr D’Haussy.

He expects the technological progress of this region, prioritised in Chinese economic policy, to spread to neighbouring countries, in the firing line of China’s broader ‘Belt and Road’ strategy for developing regional infrastructure.

Increasingly, he believes Hong Kong will play an important role for these surrounding nations as a financial and international dispute centre, with a robust rule of law, used to formulate regulations for the region. Its privacy rules, providing for a “very different relationship” with data than on the mainland, are also a positive, he says, despite the huge attention Hong Kong is gaining internationally following high profile arrests of dissenters against integration into China.

While the Pearl River Delta initiatives seek to further involve Hong Kong in domestic growth, it is inevitable that Shanghai, Beijing and Shenzen will become more prominent as financial centres as China’s financial system liberalises, says Charles Chang, deputy dean at Fanhai International School of Finance, Fudan University in Shanghai.

Any concerns over restrictions on freedom of speech in the territory will not stop Hong Kong wealth managers from becoming more involved with mainland investors, believes Professor Chang. “Hong Kong still has more access than mainland alternatives, and remains one of the strongest global players in terms of financial services provision,” he says. 

Although office and staff costs are high, taxes in Hong Kong are low with incentives available for start-ups. But Hong Kong entrepreneur James Chen, chairman of Wahum Group Holdings, feels Hong Kong is now falling behind other innovation hubs in Asia. “Young people here feel disaffected. There is no longer the Hong Kong dream of anyone able to get a few lucky breaks and then end up becoming the next Li Ka Shing,” he says, referring to the ports investor and philanthropist known as “Superman” in the territory. 

“In Shenzen, the mood is totally different. Young people there are working in industry serving a vast and fast-growing market. They are full of enthusiasm for opportunities and you can see and feel the energy. We are just one river away and yet the mood is so different.”

This innovation and connectivity so close on the mainland has the effect of making Hong Kong Chinese feel even more stressed and inadequate by comparison, says Mr Chen. “Hong Kong has always re-invented itself, to be ready for the next big thing. But apart from an IPO platform for big Chinese companies, it has nothing to offer any more.”

But many voices in Hong Kong believe it is far too early to write off this Special Administrative Region, despite its gradual absorption into the mainland’s economy and political system.

“There are two groups of people here. The first is less positive about Hong Kong. They believe growth has reached its peak and we are not as competitive as China,” says Marina Lui, head of China Business at UBS in Hong Kong. “The other, very smart group of people believes in leveraging the connectivity we have built with Shenzen,” highlighting the latter’s expertise in artificial intelligence and start-ups, combined with Hong Kong’s financial clout.

The Greater Bay Area's population of 66 million, includes more than 200,000 high net worth households and 150 billionaires, according to UBS.

The bank is calling for wealth managers to help build connectivity between the 11 cities in the region, including Macau, Hong Kong and Shenzen, in the hope that the Chinese authorities eventually allow investments to be freely transferred.

“A ‘Wealth Management Connect’, allowing assets in the Greater Bay Area to be ring-fenced, would be a real game-changer,” says Ms Lui. “We have started the first stage, making ourselves familiar with the different parties in various cities. Now we are waiting for the policy change. The Greater Bay Area can leverage on Hong Kong’s product knowledge and working together, we can co-operate on global diversification.”

Many Hong Kong residents who do not visit the mainland regularly, think they live in a high-tech, progressive society. But the moment they set foot in nearby Shenzen, their illusions are quickly dashed, says Roger Bacon, head of investments at Citi Private Bank Asia Pacific. 

“You go to the mainland and nobody even takes cash. Hong Kong is behind the curve,” he says. “Hong Kong is also mindful of Singapore’s fintech innovation. I feel that Hong Kong is going to be raising its game. There is pressure now from both north and south.”

It is far from a zero sum game between the competing centres, says Mike Blake, CEO at UBP for Asia, with Hong Kong having developed a pre-eminent regional reputation for flotations and Singapore specialising in asset management. “But in terms of innovation and fintech, you have to hand it to Singapore.” 

DBS, Singapore’s most innovative wealth manager, gets 40,000 feedback messages on its private banking app every month. “If you stop learning, you die,” says Su Shan Tan, group head of consumer banking and wealth management at DBS. “All digital companies are our competitors. Whether they are currently doing private banking or not is irrelevant. All platforms want to get into financial services, so we must continue to experiment and innovate.”

Entrepreneurs such as Roy Lai, CEO of  InfoCorp Technologies, praise the regulatory environment and innovation in Singapore. “If you want to see bright ideas created, this is a good place to start. It has global reach beyond south-east Asia and has pioneered blockchain projects, which are at the heart of new tech.” 

It is this Singapore spirit which is currently keeping the tiny country ahead of other Asian competitors. Three years ago, when the Monetary Authority of Singapore set up its fintech hub, S$5bn ($3.6bn) was allocated for new ideas and initiatives. For Julia Leong, financial services partner at PwC in Singapore, the difference between the two duelling centres is a simple one. “Singapore has a country fintech initiative, with full support at national level, whereas Hong Kong is a city, which is part of China.”