Are fintech startups eating traditional banks' lunch?

Fintechs discuss coopetition at Internet Economy Summit 2017Hong Kong's fintech startups have been pulling a sharp growth trajectory. Between August 2015 and August 2016, the number of fintech startups increased by 60% from 86 to 138, based on Invest Hong Kong's statistics.

At the April 2017 Internet Economy Summit, Secretary for Financial Services and the Treasury KC Chan said Hong Kong attracted some US$400 million of venture capital (VC) investment in fintech companies between 2014 and 2016 -- ahead of many of its regional peers.

Under the Securities and Futures Commission, a number of companies are providing fintech services including online fund distribution, robo-advice, and a fund structure that invests in the peer-to-peer (P2P) loan market, Chan added.

Targeted to launch in mid-2017, the HK$2 billion Innovation and Tech Venture Fund is expected to help bridge the funding gap for technology startups, in the form of co-investment by the Government and VC funds in local innovation and technology startups.

Fintech businesses in Hong Kong come in a kaleidoscopic variety, as they represent the convergence of multiple disciplines like finance, data analytics and security.

According to Elena Mesropyan, market research analyst at Let's Talk Payments, the Hong Kong fintech ecosystem covers payment and money transfer, mobile wallet, foreign exchange and remittances, currency comparison platforms, asset and wealth management, investments advisory, lending and crowdfunding, credit scoring, blockchain and cryptocurrency, mobile banking, data security, as well as insur tech, reg tech and law tech.

Partners or rivals

In April, audit and tax services firm PwC published the "PwC Hong Kong's 2017 FinTech Survey." Of the financial services executives surveyed in Hong Kong, 77% see startups as the greatest sources of disruption in the next five years.

The top three threats posed by fintech firms, according to the Hong Kong financial services executives that responded to PwC's fintech survey, were: information security (70%); increased price competition (60%); and legal and compliance risk (53%).

With fintech business entities advancing the financial services markets on all fronts, how should traditional financial services institutions handle this massive disruptive force?

Fintech startups and enterprises including Privé Financial, APrivacy and TNG Wallet acknowledged the disruption that their businesses bring to the financial services industry, but stressed that they are collaborators, not competitors.

At the panel discussion titled "Hong Kong's Fintech Journey -- where are we, what's next?" moderator Juwan Lee, founder and CEO of Nexchange (Hong Kong) asked whether his fellow panelists are in competition with financial institutions.

"There are people saying that fintech companies will eat the lunch of financial institutions like banks, while the tech vendors will provide the guns and bullets. Which side of the camp are you in?" he asked.

Augment existing services

"I'm happy to say that I'm a collaborator," said David Lee, managing director of Privé Financial.

Founded in 2011, Privé is a B2B solution provider that runs an online platform, using artificial intelligence (AI), to integrate wealth and asset management and client relationship management for advisors and wealth managers.

"For us we believe that we should make the [investment] advisor more efficient, augment that person so that he or she provides better advice, makes more fees and makes customers happier," Lee said.

"We believe that the current [financial] system is undergoing a sort of revolution of having banks and advisors permeated into its DNA. It has gone through hundreds of years and will not change in an instant, regardless of the hype in fintech," he said.