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What will be driving Hong Kong FinTech M&A in 2020?

Publication January 2020


Against a backdrop of a challenging macro-economic environment and increasingly bearish market sentiment, FinTech could prove to be a bright spot in Hong Kong’s 2020 M&A activity.

Tech has been a driving force in M&A over recent years across all industries but especially so in financial services. With 2018 culminating in record levels of FinTech funding (and China leading in global FinTech investments), as investee companies continue to mature we expect to see a desire for exits during 2020 and onwards, either in the form of IPOs, trade sales to traditional financial institutions or the new challengers, including virtual banks, and consolidation among FinTech providers looking to broaden their service offering.

While FinTech embraces a wide variety of sub-sectors, services and products, we believe three factors in particular will contribute to the growth in FinTech M&A in Hong Kong over the coming 12-18 months: virtual banking, payments and InsurTech.

Virtual banking

Following the Hong Kong Monetary Authority’s launch of the virtual banking license scheme, out of 33 applicants so far, 8 have been awarded licenses. Notably half of the successful applicants are joint ventures, including partners in sectors outside financial services, including travel and telecoms. This appears to be indicative of a strategy to develop complete lifestyle services on one platform in order to differentiate themselves from traditional banking services.

We expect there to be a number of drivers for M&A in the virtual banks space.

Perhaps in contrast to the strategies of the challenger banks in Europe to date, to build and maintain their customer bases, instead of focusing on one niche area, we expect virtual banks will need to be able to deliver best-in-class offerings in a wide range of products and services. We believe this will continue to drive the trend in M&A to establish consortia in the development of virtual banks, as well as driving acquisitions by the banks to deliver growth, in both customer bases in existing and new geographies, but also new products and services. This strategy is evidenced by the fact that traditional institutions, with their experience of offering integrated financial products and services, have been among those successful joint venture applicants, notably, Bank of China (Hong Kong), Standard Chartered and Industrial and Commercial Bank of China, as well as digital insurance providers, Zhong An and PingAn.

New virtual banks could also prove to be valuable acquisition targets to traditional providers who may have found themselves behind the curve in digital banking. Likely targets will be those who have developed leading technology that could be deployed more widely using traditional institutions’ customer bases or those who themselves have already developed large customer bases offering the opportunity to cross sell digital services in wealth, insurance and other areas.

Further, open banking initiatives which have been in their infancy in Hong Kong but over the last 18 months have been developing, spurred by the phased introduction of new rules by the HKMA. An increase in the adoption of open banking is likely to generate additional M&A activity, as both incumbent and virtual banks race to offer a range of new services as a multichannel marketplace.


As the prominence of payments in the global financial services system continues to increase, we expect this to drive M&A activity in Hong Kong for a number of reasons.

Firstly, due to the maturation of the Chinese payment market, we expect that dominant market leaders in China will seek further growth by expanding into other countries. A likely outcome is an increase in deals of a similar nature to Ant Financial’s acquisition of WorldFirst.

2018 was a record high for investment in FinTech companies in Asia with over US$22bn being raised, of which Ant Financial represented more than half. There are therefore a number of market leaders with the capital to support a strategy of aggressive expansion, as can be seen by the fact that other top deals in 2018 were in the Asian payments sector.

Secondly, as FinTech companies shift their focus away from the end-customer to financial institutions there is increasing collaboration between the two sectors. Given Hong Kong’s key role in international payments and settlements, the demand from financial institutions for these services is likely to drive growth.

Thirdly, major technology companies are continuing to use eWallets as a springboard into key markets such as India and Southeast Asia. Their approach has been to gain access and drive market share through acquisitions, then, once established, develop an integrated eCommerce platform. Similarly, other technology companies whose core business is not in payments have been expanding into payments. For example, integral to the evolution of Indonesian ride-hailing app Go-Jek was the addition of its online payments system.

In parallel to this, the original payments FinTech companies, such as PayPal, have begun scaling up through M&A themselves in an attempt to diversify across business sectors and maintain their dominance in the wake of growing competition.


The Hong Kong Insurance Authority began taking measures to assist the development of InsurTech in 2017 through the introduction of the fast track scheme for digital-only insurance providers and the InsurTech sandbox. While progress has been relatively slow, we have now seen the first life virtual insurer under Fast Track, which was authorized in December 2018, and the first non-life virtual insurer, authorized in October 2019. We expect this program to drive the InsurTech market in Hong Kong and ultimately, M&A.

Although the lack of InsurTech start-ups passing through the scheme is surprising when contrasted with the success such start-ups have had in a similar regulatory environment in Singapore, where one of the earliest exits to the Monetary Authority of Singapore’s sandbox was by the digital insurance company PolicyPal, the result of an untapped market, along with the start-up friendly regulation introduced by the regulator, is that more InsurTech start-ups are emerging in Hong Kong. As these start-ups begin to grow and tap into the huge potential in Asia’s insurance market, within which over 80 percent of customers are willing to use digital methods instead of interacting with insurers, they may look to consolidate as they battle it out for market share.

As incumbents seek to move into the InsurTech space it is likely that start-ups will become attractive acquisition targets as incumbents look to acquire technology companies in order to deliver their own digital solution to the market. For example, we acted for Zurich on its acquisition of Brightbox, a company whose technology could be rolled out into Zurich’s traditional insurance products.

There is also a trend of InsurTech companies, most notably ZhongAn and PingAn, moving into the virtual banking space. This suggests that as InsurTech grows, market players will look to diversify and expand into other sectors, ultimately looking to challenge the dominance of traditional financial institutions in offering a full suite of financial services in a way that appeals to the digital generation.

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