Despite its well-established position as a premier financial center in the region, Hong Kong is widely seen to be falling behind its neighboring economies in the development and use of financial technology.

Such a shortcoming could undermine the competitiveness of the Hong Kong banking industry, which, in turn, could lead to a loss of financial businesses to various aspiring centers on the Chinese mainland and elsewhere in the region.

The momentum for fintech development in Hong Kong is getting a major boost from the virtual banks, which are going to change the financial landscape and pose new challenges to traditional banks

Unsurprisingly, the fintech race has become a matter of great concern to the government and major players in the industry. That is because financial services contribute 18 percent of Hong Kong’s GDP and 6 percent of its employment, according to the Financial Services Development Council, which was established by the government in 2013 to specifically address the competitiveness issue.

To achieve its mission, the council has placed special emphasis on the development of fintech. In a 2017 survey, the council lamented that Hong Kong, despite its large financial sector, “as yet has only a modest showing in the fintech space”, while the mainland “is already the global fintech leader in terms of scale”.

The need for the development of fintech, which can create new jobs and business opportunities for entrepreneurs in the IT industry, is seen to have become increasingly pressing at a time when Hong Kong is being rocked by violent protests that have exposed the deep frustrations of many young people arising from what they see as an insurmountable barrier to social mobility.

Unlike their predecessors, today’s young people are troubled by the scarcity of jobs that offer opportunities of advancement. Their concern is not unfounded because the majority of the services sector jobs, other than those in the financial sector, are low-paid and demand little skill.

What’s more, the cost of starting up a business in the highly competitive services sector has become prohibitively high because the usually thin profit margins of many establishments in retail and catering simply cannot cover the high rents of commercial space.

Banks in Hong Kong have not ignored the fintech trend. The major players, including HSBC, Hong Kong’s largest bank, have said they would increase their respective investments in technology to improve customer service and, more importantly, cut costs.

These investments would create many new jobs for IT professionals and greater opportunities for fintech software developers. A human resources consultant company predicted there would be a strong demand by banks for IT specialists with knowledge of banking and finance.

Other than banks, there are already hundreds of fintech startups in Hong Kong developing applications for online corporate or personal finance, according to Fintech Newsletter. Gini, for instance, is one of the larger fintech startups, which has developed a platform that allows users to link all their bank accounts, credit cards and mobile wallets so that they can track their transactions in one place.

Other major fintech players in Hong Kong are engaged in online brokerage and fund management businesses. They include online brokers and wealth management companies such as FinEx Asia and Futu Securities.

The momentum for fintech development in Hong Kong is getting a major boost from the virtual banks, which are going to change the financial landscape and pose new challenges to traditional banks. The government has issued eight virtual bank licenses to different consortiums. One of them has opened for business, and others are expected to follow in the coming months.

They are allowed to offer only online banking services to their customers. With the savings on bricks-and-mortar branches and overhead costs, these banks can theoretically undercut banks in the competition for customers, especially those who have already gone online using banks’ apps.

To defend their turfs, traditional banks are stepping up their investments in technology to match the virtual banks. In fact, the traditional banks are no slouch in this respect. Their customers can already do much of their banking transactions on the apps of individual banks other than withdrawing cash.

Indeed, Hong Kong people are well-served by their banks although the market is overwhelmingly dominated by two players, HSBC and Bank of China (Hong Kong). They both have extensive branch networks, and their ATM machines are almost everywhere in commercial districts and residential neighborhoods.

What bank customers value most are convenience, efficiency and security. On that they have little to complain about.

Before rushing headlong into fintech, it is necessary to strengthen the regulatory environment to ensure security. To do that, the Hong Kong Association of Banks has established a platform for its members to share information on cybersecurity. This platform can be extended to include non-bank financial institutions so that they can take precautionary measures against the latest cyberthreats.

There is a proposal to establish a sectorwide utility to provide subscribers with customers’ identities, which are important information for banks in making loans in keeping with the common guideline of “knowing your customer”, observed by bankers for generations.

Emphasizing the importance of the fintech strategy, the government-sponsored council said that it represents “a major statement of Hong Kong’s intent to be a regional, even global, fintech center”. That will help cement Hong Kong’s future competitiveness as a major international financial center while strengthening “its attractions as a springboard for mainland fintech firms to expand internationally.”

The author is a veteran current affairs commentator. 

The views do not necessarily reflect those of China Daily.