Exclusive: ‘Xchange of value’ – Medhy Souidi, DBS in “The Fintech Magazine”
Medhy Souidi, Head of DBS’ Startup Xchange initiative, tells us why he thinks Hong Kong will continue to be a beacon for fintechs.
Hong Kong has for decades been a gateway from West to East – and it’s a gate that’s mostly swung both ways. The current political standoff over China’s apparent dismantling of the one-country-two-systems framework, threatens to knock it off its hinges.
The US has warned it will strip Hong Kong of its special trading status, while the UK has offered sanctuary to almost half the population in the wake of protests against China’s plans to introduce a national security law on the territory. The UK claims the law violates the handover agreement struck with Hong Kong in 1997, intended to protect the territory’s judicial and political independence at least until 2047. Meanwhile, both HSBC and Standard Chartered banks have publicly supported it.
What will it all mean for the third most important financial centre of the world, through which, according to data from the Society for Worldwide Interbank Financial Telecommunication, about three-quarters of all Chinese renminbi payments flow and where China plugs into the world’s capital markets?
The American Chamber of Commerce in Hong Kong published the results of a survey last month that showed more than a quarter of companies questioned were considering moving elsewhere. But, so far, there has been no flight of human or financial capital. And, as far as fintech is concerned, the geography doesn’t change. Whatever the colour on the political map, Hong Kong still sits on the doorstep of one of the biggest, most digitally advanced populations with a beguiling R&D resource clustered around China’s leading tech companies just across Victoria Harbour.
When DBS Bank was looking in 2018 to establish its new Startup Xchange – an incubator that seeks out startups that might offer solutions for bank customers and the bank’s own business units or create commercial products with it – Hong Kong was an obvious base, alongside Singapore. Not least because Hong Kong’s still independent Monetary Authority had been carefully working towards a new financial regulatory environment, one that gives investors, service providers and consumers confidence in digital financial services.
A Faster Payments System, supporting both the Hong Kong dollar and the renminbi, was introduced in 2018, enabling cash transfers by mobile or email. In January 2019, the HKMA began the phased introduction of open banking by launching the Open Application Programming Interface (Open API) Framework. Later that year, it granted Hong Kong’s first virtual bank licences. And all banks are being encouraged to adopt common KYC practices for e-onboarding that include technology for both identity authentication/verification and identity matching, such as facial recognition.
The compliance framework sounds familiar to those from the West, meanwhile the digital lights shine bright across the Greater Bay Area in China’s fintech lab of Shenzhen. China’s plan for the Greater Bay Area, to which Hong Kong belongs alongside Guangzhou, Shenzhen, and Macau, is set to play a major part in moulding Hong Kong’s future, with some media calling it the blueprint for China’s plan to beat Silicon Valley.
“There are about 70 million people in the Greater Bay Area right now. It’s three times the size of the San Francisco area and the same as the New York metropolitan area in terms of GDP.,” says Medhy Souidi, head of DBS’s FinTech and Startup Xchange initiative. “The plan is to develop an international innovation and technology hub – imagine putting New York City next to Silicon Valley. It will develop the infrastructure and connectivity between the people in the different cities and build a global, modern industrial system.
“Shenzhen is a pool of talent for AI and data; there are a lot of developers there. Many companies with headquarters and offices in Hong Kong, are also cross-border in Shenzhen or Guangzhou, to support the development and increase their technology capabilities and skills.”
Meanwhile, Hong Kong is a conduit for investment into the mainland and contributes its banking knowledge and expertise. And, of course, it gives access to a much bigger market than the island’s seven million inhabitants.
“In mainland China, you have both successful B2B and B2C business models, and it’s quite easy for B2C companies to acquire a couple of million users,” says Souidi. “In Hong Kong that’s difficult, because it’s only seven million people, so most of the fintechs there are really focussing on B2B, or B2B2C. My job is to oversee these companies, propose the different services to DBS, and help with a digital transformation that will make the bank almost ‘invisible’ [in terms of frictionless user interface] through the new technologies.”
It’s the value, not the tech
Startup Xchange is essentially a matchmaker to help DBS and its clients pair problems with the startups who are developing the technology that might provide a solution. “The programme is focussed on four areas of technology that will help businesses stay relevant in the long run: artificial intelligence (AI), data science, immersive media and the Internet of Things (IoT),” explains Souidi.
“We really try to focus on the value proposition, we don’t care so much about which technology it’s using, though – if it’s blockchain, AI, or machine learning. What we try to do is to see if the technology is suitable for the bank, if the integration is easy, and if we can implement it quickly. Quick wins are very important to us: first to see the feasibility of the project, and then the feasibility of the result. Can we see, after proof of concept, some metrics that show the difference between what we have currently as a process, and what we can expect to have with the new process?
“Does the technology answer a problem for the industry? Some startups have a weak proposition, because they don’t really take care of a problem. Or sometimes they come with a solution that doesn’t address all of the problem. As I said, the technology is not the most important thing, though; it is how you can leverage on the value proposition.”
The results of StartupXChange were strong from the off, as just a few months after its launch, it had matched 21 startups with different DBS Bank units and SME clients.
So where specifically does Souidi think the opportunities lie?
“I think nothing is more exciting than AI development, especially here where we can see, in both banking and the fintech industry, many challenges. Some of that is about how we can integrate AI in to the business. But then also how you can structure and streamline that data and make it easy to understand not only for the systems, but also for people to analyse it.
“For large organisations, I think we need to focus also on the lack of standardisation of data and risk management. This is really important for the bank and the ecosystem.
“The ecosystem is definitely the biggest thing that everyone wants to focus on, how to integrate different services, and have different actors in your universe and work with them seamlessly. That’s why I mentioned invisible banking – how we can help to do transactions, collection of money, payment, transfer, remittances, all those things, differently and seamlessly, for everyone, corporates and individuals.”
Helping to enable that ecosystem in Hong Kong is Cyberport, a digital community made up of a number of technology companies that can prove both beneficial to the Greater Bay Area and in relationships between Hong Kong, China and the rest of the world. Lee George Lam, Cyberport’s chairman, has been keen to promote it as a place where Hong Kong and the US can collaborate on everything from digital entertainment to artificial intelligence. Cyberport houses about 600 tech companies and it’s startup survival rate is impressive at 72 per cent.
“Hong Kong is the fifth fastest growing startup ecosystem in the world and it’s a diverse ecosystem, counting about 12 per cent fintechs,” says Souidi, who also points out that, since 2010, Hong Kong’s fintech startups have raised US$940million, compared with US$387million raised by those based in Singapore.
How freely those US dollars will continue flowing into Hong Kong is up for debate, but Cyberport and StartupXchange are both examples of the territory’s dedication to finding ways to keep the gate open.