On March 18, HSBC signed an agreement to support the fintech companies within the incubation programs of the Hong Kong Science and Technology Park.
At the signing ceremony, officials from both the bank and HKSTP noted talks had begun one year ago.
What else happened back in March of 2023?
That was when, across the Pacific Ocean, Silicon Valley Bank collapsed. In the fallout, spinning the globe to London, HSBC scooped up SVB’s European portfolio of startups for a mere £1.
Post-SVB
SVB pioneered the practice of venture debt, a rarified business that combines the riskiness of startups with what is supposed to be the most conservative part of a bank, lending.
The ongoing boom in Silicon Valley fortunes, now led by the new wave of artificial intelligence companies, has attracted many banks. Banks are also aware of the danger of being left behind as the global economy becomes more digital.
In California, the race to bank the next generation of world-changing companies is on, with several banks along with a reconstituted SVB competing for the business. HSBC is trying to leverage its European windfall into becoming the SVB to the world.
But HSBC is not Silicon Valley Bank. SVB’s specialization in venture debt depended on some unique characteristics. It had a stranglehold on offering bank accounts to startups – particularly foreign startups that needed a toehold in the US – and a network to help companies with exits and IPOs. It managed risk by being too big for a venture capital business to allow one of its portfolio companies to default.
Fintech focus
HSBC is a global giant but it’s also a traditional licensed institution – a TradFi. Its strengths are understanding the complexities of regulated finance.
Naturally it wants to play to its strengths, and that road inevitably leads it to fintech. While the UK business can continue to manage the broad tech portfolio it acquired from SVB, the bank is taking a more proactive stance toward fintech, and it’s doing so in Hong Kong.
The deal with STP, an incubator with about 1,200 startups, of which about 100 are in fintech, is designed to help those entrepreneurs understand how to work with large banks – to become “big-bank ready”, as Bojan Obradović, HSBC’s chief digital officer, put it.
The agreement aims to put Hong Kong at the heart of a global strategy, to help local fintechs expand overseas and to help global fintechs enter the city (and by extension, perhaps mainland China).
“We want to be the preferred banking partner for fintechs and the fintech ecosystem,” said Luanne Lim, the bank’s Hong Kong CEO (pictured).
Albert Wong, CEO of HKSTP, noted the partnership will aim to help Hong Kong fintechs enter markets such as Saudi Arabia and the United Arab Emirates, via “international corridors matching our startups’ innovation with HSBC’s banking expertise”.
Fintech friendly
The agreement runs for three years, and is meant to be more than the usual memorandums of understanding between banks and government-backed groups like HKSTP. (HSBC has partnered with HKSTP on various arrangements in the past.)
It is meant to be relevant to all lines of HSBC’s business, from corporate and retail banking to wealth, insurance, payments, trade, and capital markets.
The bank says it will develop financial solutions to cater to fintechs, and that it will include investment opportunities, both in venture equity and venture debt. There’s a lot of corporate VC in this, with HSBC keen to be an investor in the startups and be a customer of the startups.
But to keep matters simple, the bank is hoping to avoid internal squabbles of costs and fees by making these relationships firstly about supporting fintechs, opening accounts, onboarding them onto the bank’s procurement ramps, and helping entrepreneurs navigate the regulatory, tax, and other complexities of new markets.
“We’ve done partnerships before,” said Eric Or, head of partnerships at HKSTP. “But bank compliance and regulation is hard for fintechs.”
The deal with HSBC is to focus on mentoring startups so they can understand what it means to work with a licensed, global institution, including consulting by the bank’s compliance and technology teams.
Don’t forget the data
Finally, the bank and HKSTP say they will develop a cross-industry data platform, connecting startups with the bank and its clients through APIs.
This data piece was only mentioned in passing – the focus of the agreement was on mentorship and market-opening – but it could prove the most consequential, if it comes to fruition.
Banks in Hong Kong, including HSBC, have been slow to adopt open-banking models. The government has attempted to build its own platforms for SMEs to share data (the Hong Kong Monetary Authority’s Commercial Data Interchange), while rival bank networks are feeling their way toward an open-banking marketplace (JETCO’s APIX).
The reason the deal took a year to consummate was because it involved the bank taking on new areas, including data sharing and venture debt, as well as creating the processes it will need internally to support onboarding of fintech startups. Indeed, the announcement only hints at the vast amount of internal work required to move such a large organization into a new strategy.
A year after the SVB saga, HSBC is helping startups become big-bank ready, but the interesting question is whether it can become startup-ready.
