A brand new report identifies the alternatives and challenges related to collaborating with fintechs, along with how banks count on the Hong Kong fintech area to develop over the subsequent decade, per Crowdfund Insider. The report was launched by the Hong Kong Institute for Financial and Monetary Analysis (HKIMR), and the findings are based mostly on a survey of Hong Kong’s conventional banks and the newly licensed digital banks.
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Partnerships between banks and fintechs may result in a extra distributed model for Hong Kong’s banking business, although regulatory and technical obstacles at the moment hinder this.
Greater than half of respondents imagine the banking system may grow to be extra distributed over the subsequent decade. The survey revealed that 51% of incumbents and 38% of digital banks have fashioned partnerships with fintechs, similar to by way of inside accelerators, innovation labs, or incubator applications. Because the fintech ecosystem continues to develop, boosted by authorities initiatives, the availability of monetary companies may be more and more shared between banks and fintechs.
Based on the survey, 57% of incumbents contemplate an eventual distributed model the place they function as joint ventures or companions with fintechs to be “potential.” In contrast, half of digital banks contemplate the distributed situation, or that incumbents will probably be changed by technologically pushed banks, as “extremely potential,” suggesting that they count on fintech to have a bigger influence on the banking business.
Nevertheless, elementary variations between banks’ and fintechs’ respective enterprise fashions mitigate profitable partnerships. A bank may be unsure as as to whether its fintech counterpart is absolutely compliant, for instance, as a result of though banks have particular license regimes, there isn’t any fintech-specific framework in Hong Kong.
The truth that the fintech regulatory panorama can also be always evolving exacerbates this additional, with 73% of incumbents and 88% of digital banks citing this as a problem to partnering. As well as, 78% of incumbents state cybersecurity dangers as a hurdle, as they’re involved that fintechs’ IT safety is insufficient. Notably, solely 38% of digital banks agree, which may very well be as a result of they’re much less prone to depend on legacy IT techniques and are thus extra assured of their cyber resilience and interoperability with fintechs.
For fintechs to profit from an more and more distributed banking model, they’re going to must each overcome the present hurdles and put together for elevated regulatory oversight. For instance, fintechs may develop initiatives with banks throughout the Fintech Regulatory Sandbox, which permits companions to launch pilot trials for restricted prospects with out having to attain full compliance.
This setting would alleviate banks’ issues concerning regulatory uncertainty. To mitigate cybersecurity issues, Hong Kong fintechs ought to look to harness the native open banking framework by working with banks to develop safety requirements for the sharing of buyer information. They may additionally suggest to assist banks improve their IT techniques to make sure full interoperability.
These initiatives would promote additional partnerships with incumbents and digital banks, with fintechs more and more concerned within the distribution of monetary companies, enabling them to scale and attain wider buyer bases. Nevertheless, fintechs must also put together for extra stringent necessities, as their rising function within the banking system will imply elevated oversight from monetary supervisors.
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