Hong Kong Business (July - September 2022)

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Issue No. 67

POACHING WAR SALARIES SOAR AS BANKS ENGAGE IN POACHING WAR TO HIRE AND RETAIN TALENT

Hong Kong’s Best Selling Business Magazine

HONG KONG BANKS FACE ‘BRAIN DRAIN’ AS TALENTS FLEE HONG KONG AIMS TO REGAIN CROWN AS FAVOURED ARBITRATION HUB

CONVERSATIONAL COMMERCE LEVELS THE PLAYING FIELD FOR BRANDS ONLINE THE FATE OF CLP POWER AMIDST HONG KONG’S NET-ZERO TRANSITIONS

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HONG KONG BUSINESS | Q3 2022

HONG KONG

FROM THE EDITOR

BUSINESS

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n this issue, we highlight the increasingly shrinking talent pool in Hong Kong. Banks are facing ‘brain drain’ as talents flee amidst strict travel restrictions, compelling them to push up offers and counter offers to their highest rate in a decade. The region also aims to regain its crown as the favoured arbitration hub with outcome-related fee structure bill.

PUBLISHER & EDITOR-IN-CHIEF Tim Charlton ASSOCIATE PUBLISHER Louis Shek PRINT PRODUCTION EDITOR Jeline Acabo COMMERCIAL EDITOR Janine Ballesteros COPY EDITOR Tessa Distor PRODUCTION TEAM Noreen Jazul Djan Magbanua Frances Gagua Vann Villegas Charmaine Tadalan GRAPHIC ARTIST Simon Engracial Monica Pantaleon ADVERTISING CONTACTS Louis Shek +852 6099 9768 louis@hongkongbusiness.hk Karisse Coderes karisse@charltonmediamail.com

We chatted with CLP Power COO Paul Tomlinson on the fate of CLP Power amidst net-zero transitions. CLP Power was in the middle of its energy transition journey when Hong Kong Government declared its intention to be carbon neutral before 2050. Read the exclusive interview on page 36.

This year marks the 25th anniversary of the establishment of the Hong Kong Special Administrative Region of the People’s Republic of China. Hong Kong Business wishes everyone a most festive celebration of this important milestone. Read on and enjoy!

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HONG KONG BUSINESS | Q3 2022

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CONTENTS

COVER STORY

SOAR AS HONG KONG BANKS ENGAGE 28 SALARIES IN POACHING WAR TO HIRE AND RETAIN TALENT

FIRST 06 HK is 4th most attractive city for retailers

07 HK CEOs less optimistic about economic growth

08 After 25 years, has Hong Kong’s

capital markets lost its sparkle?

10 Overcoming challenges in HK’S construction

BRIEFINGS 14 Hong Kong banks face ‘brain

drain’ as talents flee amidst strict travel restrictions

16 HK aims to regain crown as favoured

CASE STUDY 20 Supporting multinationals to uncover ambitions in Asia

22 Standard Chartered Hong Kong sees metaverse as future of banking

42 Women in insurance: What’s

blocking the way to equality

INDUSTRY INSIGHT 24 Top three things killing the insurance industry

34

INDUSTRY BRIEFING A NEW CANVAS: WHY ARTISTS ARE JUMPING INTO THE NFT SPACE

36

INTERVIEW THE FATE OF CLP POWER AMIDST NET-ZERO TRANSITIONS

STARTUP 32 How Coherent turns Excel sheets into improved business systems

ANALYSIS 40 SMEs embrace flexible payments as consumers seek digital options

44 Climate risk is burning billions and Asia remains vulnerable

OPINION

26 Alternative payments dominate Asia

46 Hong Kong insurers step up to seize

38 Could phase-outs harm Asia’s

48 SMBs can ramp up business by

as credit card use dwindles nuclear energy growth?

opportunities in Greater Bay Area

harnessing the power of innovation

arbitration hub

18 One chat away: Conversational

commerce levels the playing field for brands online

Published Quarterly by Charlton Media Group Pte Ltd, 2 HONG BUSINESS | JANUARY Q3 2022 2019 19thKONG Floor, Yat Chau Building 262 Des Voeux Road Central

For the latest business news from Hong Kong visit the website

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HONG KONG BUSINESS | Q3 2022

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News from hongkongbusiness.hk Daily news from Hong Kong MOST READ

OVERFLOW: 40 WORDS ECONOMY

HR & EDUCATION

‘Worse than 2021’ German business confidence in HK at record low

Here’s why more women want worklife balance than men

Overworked? Study finds that 72% of Hong Kong employees are unhappy

The German community’s business confidence in Hong Kong was at an all-time low, with an average score of 2.30, which is lower than the previous score of 2.80 recorded in June 2021, according to a survey conducted by the German Industry and Commerce and German Chamber of Commerce.

It seems women have higher expectations from their employers than men as 65% of women workers said work-life balance is their top factor in looking for an ideal employer whilst 55% of men shared the same belief, according to a report by recruitment firm Randstad.

With 41 hours on average spent on their jobs each week, 72% of Hong Kong employees have expressed displeasure towards their work.

A study by workspace innovation company The Instant Group revealed that Hong Kong ranked third most overworked place in APAC.

COMMERCIAL PROPERTY

4

HR & EDUCATION

COMMERCIAL RETAIL

HR & EDUCATION

Which segment was the hardest hit by the fifth wave?

Is the retail property market on its way to redemption?

Here are the 5 key trends that will shape the labour market

Hong Kong’s commercial real estate market has been hit hard by the fifth wave of the pandemic with all its segments seeing a decline in rents and an uptick in vacancy in Q1.

A CBRE report said, leasing sentiment weakened mostly in Grade A office, and retail segments.

Despite a 4.1% ($33.9b) YoY jump in retail sales value in January, a report

by Knight Frank said redemption for the retail property market might only happen after March.

The Knight Frank report said the fifth wave will likely peak in March and will only coo down in the months after.

Global workspace provider International Workplace Group highlighted five trends arising from the hybrid work model.

“Company leadership and HR managers are making pivotal shifts in policies as they adapt to the new hybrid reality,” said IWG.

HONG KONG BUSINESS | JANUARY Q3 2022 2019

HONG KONG BUSINESS | Q3 2022

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FIRST measures, the study found that middle-aged or older females with higher educational attainment were more compliant, whilst maintaining good hand hygiene and environmental hygiene was the most difficult to follow.

About 46% of the respondents were willing to receive the COVID-19 vaccine, the majority of whom were middle-aged or older married males who were family caregivers with lower educational attainment.

Of the respondents, 69% were aged between 18 to 59 years old and most are working adults.

HK IS 4TH MOST ATTRACTIVE CITY FOR RETAILERS

H

ong Kong, a market dependent on inbound tourism, ranked fourth in the latest Savills Retailer Attractiveness City ranking, as it faced “sharper declines” and is expected to face a longer recovery road.

In a statement, Savills said New York, Paris, and London topped the ranking as the most attractive cities for retailers, noting that they retained the key essentials of a successful retail location and are set to “bounce back quicker” this year than other cities.

“These cities all benefit from affluent domestic markets and have already demonstrated far higher levels of resilience over the last 18 months,” said Marie Hickey, director of retail research at Savills.

Hickey said New York suffered “relatively less” during the pandemic on the back of a robust domestic tourism market, whilst Paris saw lower penetration of e-commerce which drove more customers to physical luxury stores.

Luxury retail With the mixed recovery across key destination cities, Savills said the pandemic created opportunities for retailers in emerging markets, especially in the Middle East and Asia.

Savills said it is seeing international brands looking at taking full control of tier stores in Dubai, where many luxury brands are represented by mono-brand stores through local franchises, with the recent changes in government policies.

It added that Cairo, Saudi Arabia, and Bahrain, which have relatively affluent domestic populations, pose opportunities for luxury retailers in the region.

Nick Bradstreet, director and head of Retail at Savills Asia, meanwhile, said the strict COVID-19 measures in China propelled domestic tourism and the emergence of new retail hotspots.

“Luxury brands will follow the lead of top developers which are expanding into Chengdu, Hangzhou, Kunming and Ningbo, amongst others. Of these, we see the most potential in Hainan, with the full island set to be a duty free zone by 2025,” Bradstreet said.

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Unemployment and time spent watching pandemic news were linked to the symptoms

1 in 10 Hong Kongers show PTSD post-COVID

M

ore than one in 10 of 12.4% of Hong Kong residents had exhibited post-traumatic stress disorder (PTSD), a year after the onset of the COVID-19 pandemic, a study by The Hong Kong Polytechnic University showed.

The study, which involved a largescale telephone survey of over 3,000 Hong Kong residents, also found that being unemployed or having no personal income, and with lower educational attainment were associated with a higher chance of developing PTSD symptoms.

PolyU also found that the amount of time spent watching pandemicrelated news can be associated with the severity of PTSD symptoms.

It noted that the respondents who watch news related to the pandemic for over an hour a day were found to be associated with increased compliance with the anti-pandemic measures and related advice, as well as more severe PTSD symptoms.

On compliance with preventative

Watching pandemicrelated news can be associated with PTSD symptoms

Effect on the elderly The second component of the study, which involved in-depth interviews of 31 adults aged over 65, found that the elderly generally believed that the COVID-19 pandemic was highly transmissible. As a result, most of them avoided leaving home for exercise and stopped regular activities.

Most of them also experienced “worry, helplessness, and depression,” whilst some expressed frustration.

It also found that the interviewees’ willingness to be vaccinated was primarily affected by their personal experiences, and opinions of their peers and families, adding that lack of understanding about the vaccines, cultural perception, and peer pressure were the main contributors to hesitancy.

David Shum, dean of the Faculty of Health and Social Sciences at PolyU, said the elderly were still suffering the negative impacts of the pandemic even if the fourth wave had been gradually subsiding when the survey was conducted.

“Being in a constant state of stress and not managing it could cause adverse impacts on our mood and daily lives, may lead to mental health problems in the long run,” he said.

He added that the public should carefully assess their PTSD symptoms and monitor changes in their own bodies, behaviours, and socialising activities, and seek help from professionals or social welfare organisations if the symptoms start to affect their daily lives.

Judy Yuen-man Siu, associate professor of the Department of Applied Social Sciences, said clearer health information about the vaccines should be disseminated to the elderly, and more resources should be invested in elderly support networks.

FIRST

Thomas Leung

Executives’ confidence in their revenue growth also declined

HK CEOs less optimistic about economic growth

O

nly 62% of executives in Mainland, China and 68% in Hong Kong expressed optimism on near-term economic prospects, making them less confident than their global counterparts (77%), a study by PwC found.

There was also low optimism towards their revenue growth prospects amongst both HK and Mainland CEOs, the study said.

Confidence in revenue growth amongst HK CEOs declined by 2%, and only 48% of Mainland CEOs

expressed high confidence.

Mainland Chinese CEOs cited health risks (42%) as the top threat to their respective company’s growth in the next 12 months, followed by macroeconomic volatility (41%), geopolitical uncertainties (32%), and climate change (31%).

Since the study was conducted in October and November 2021, it has yet to reflect the spread of Omicron in China, as well as the geopolitical tensions between Russia and Ukraine.

Meanwhile, Mainland China was

There was low optimism towards revenue growth prospects amongst HK CEOs

named the top market for growth amongst HK CEOs (78%) and ranked second amongst global CEOs (27%).

Mainland Chinese CEOs, for their part, are considering the US (29%), Australia (24%), Germany, and Japan (23%) as their most important overseas markets for revenue growth over the next 12 months.

In terms of priority markets for outbound investment, Mainland Chinese CEOs are targeting the Asia Pacific (66%), Belt and Road countries/regions (50%), and the EU (48%) in the next 12 months, whilst Hong Kong CEOs plan to invest in the Asia Pacific (69%) and the ASEAN region (46%).

“In the past year, China’s economy has maintained a steady recovery trend even in the complex and severe domestic and foreign context, facing many risks and challenges. Looking into 2022, businesses can expect to face additional challenges posed by macroeconomic volatility, geopolitical tensions, cyber risks, and the increasingly urgent need to transition to a net-zero economy,” Thomas Leung, Managing Partner - Markets, PwC China said.

“Looking ahead, CEOs in Mainland China and Hong Kong will need to rethink their strategic roadmap for sustainable growth and identify longterm growth opportunities by going beyond short-term financial metrics to navigate these turbulent times and ensure sustained outcomes,” he added.

HONG KONG WILL SEE RISE IN DEMAND FOR MEDICAL REAL ESTATE—HERE’S WHY

D

emand for medical real estate is expected to rapidly grow in Hong Kong, which will be driven by the market’s ageing population, increasing spending on medical services as well as wider insurance coverage, CBRE reported.

CBRE had initially reported in 2019 that medical centres in the city would need an additional 1 million square feet (sq. ft.) of commercial space for expansion. This was, however, delayed due to the volatility of the economy, and changes in policies, amongst other factors.

According to CBRE, the “silver hair” population of Hong Kong, or those above 65 years old, is expected to climb to 2.7 million by 2047 from 1.5 million in 2022.

Medical expenditures, meanwhile, accounted for 6.5% of the city’s gross domestic product per capita in 2019/2020, up from 5.1% in 2009/2010. Moreover, insurers

have increased their medical spending in Hong Kong four times to 35% from 8%.

“Rising IPO and M&A activity within the healthcare sector will also accelerate expansion by medical providers,” Marcos Chan, Head of Research, CBRE Hong Kong, said.

“Another driving force is the growing pool of medical talent, with the Government setting up a pathway to introduce nonlocally trained doctors via the passing of the Medical Registration (Amendment) Bill 2021 in October 2021.”

CBRE noted that the active health sector M&A, coupled with the collaboration of the medical centres and insurance companies are generating new requirements.

With just under 14 million sq. ft. of new supply due to come on stream from 2022 to 2026, Hong Kong’s Grade A office market will provide substantial expansion opportunities for medical occupiers over the next five years.

There is a need for an additional 1 million sq. ft. for medical centres

HONG KONG BUSINESS | Q3 2022

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FIRST

Eddie Wong

Funds raised by IPOs in H122 are predicted to reach HK$17.1b

After 25 years, has Hong Kong’s capital markets lost its sparkle?

I

t has been 25 years since the Hong Kong Stock Exchange’s handover and since then it has proven its efficiency as a platform for corporate listing and financing – with a total of 2,578 companies listed and topping global IPO fundraising for seven of the last 13 years.

However, the ongoing pandemic, the risk of geopolitical instability, and other unfavourable factors such as rising interest rates to suppress global inflation have slowed down the city’s IPO fundraising activities in 2022.

Based on a PwC Hong Kong report, there were only 22 new listings in Hong Kong in the first half of the year, mostly comprising retail, consumer goods & services (41%),

and financial services (23%).

Amid the ongoing pandemic, the risk of geopolitical instability and other unfavourable factors – including rising interest rates to suppress global inflation – Hong Kong’s IPO fundraising activities slowed in the first half of 2022.

PwC Hong Kong estimates in the report that there were 22 new listings in Hong Kong in the first half of 2022. These mostly comprised retail, consumer goods & services (41%), and financial services (23%).

The number of its Main Board IPOs also decreased by 53% YoY. Meanwhile, total funds raised

by IPOs in the first half of 2022 are predicted to reach$17.1b, marking a decrease of 92% compared to the same

Benson Wong

Organisations are choosing a ‘wait-and-see’ approach to economic revival

period last year.

Eddie Wong, PwC Hong Kong Capital Markets Services Partner said the slowing down of Hong Kong’s capital markets was because organisations are choosing a ‘wait-andsee’ approach to economic revival and postponing their fundraising activities due to market uncertainties.

“Organisations need to be wellprepared, review their business needs carefully and go public at the right time,” Wong added.

The IPO market’s slowdown, however, will not be for too long said PwC Hong Kong, adding that the market will gradually regain momentum in H2 2022 “with the support of a number of policies that are favourable to economic growth.”

“Hong Kong’s pipeline for IPOs remains active, with the proven fundamentals of the U.S.-listed Chinese enterprises and new economy businesses expected to continue to be the main drivers of listing activity,” Wong said.

This was echoed by Benson Wong, PwC Hong Kong Entrepreneur Group Leader, saying that economic growth and liquidity measures from the Government and the Central Bank will allow “Greater China companies without weighted voting rights and which are not from innovative sectors to seek secondary listings in Hong Kong.”

For the entire year, PwC Hong Kong expects total funds raised to be between $180b to $200b in 2022.

Net-zero targets uncover HK’s need to increase retrofitting rate: JLL

H

ong Kong will need to speed up retrofitting 85% of its buildings to reach its net-zero targets, property consultant JLL reported.

The real estate sector in Hong Kong accounts for 60% of the overall carbon emissions in the city. This is the same level as the average emissions seen across 32 urban centres across the globe, but higher than the 40% estimate of the World Green Building Council.

“Buildings are both the problem and the solution for our climate crisis, and partnerships between the private and public sector are critical to driving tangible progress in decarbonising the economy.

For Asia Pacific, this is especially important in cities like Hong Kong, where 85% of buildings are over 10 years old and extensive retrofitting is required of existing building stock. Yet no targets have been set to decarbonise buildings,” Kamya Miglani, Head of ESG Research, Asia Pacific, JLL, said.

“If this doesn’t happen, we can expect local governments to introduce heavy regulation and

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HONG KONG BUSINESS | Q3 2022

penalties on building standards – there will be winners and losers as cities race to net zero carbon.”

In its “Decarbonising Cities and Real Estate” report, JLL found a significant gap between policies in cities, the impact of the industry, and the climate science.

This calls for a fast response to limit the impact of climate change.

“Even with a current rate of between 300 and 500 new buildings under construction in Hong Kong each year, between 60% and 80% of the buildings that will be in existence in 2050 are already standing,” Helen Amos, Head of Sustainability at JLL in Hong Kong, said.

“The buildings are not efficient enough to comply with future carbon reduction targets. Retrofitting the existing building stock to net-zero carbon is central to decarbonising a city’s economy. Given that Hong Kong is slow to implement strict standards on new builds, the city should accelerate the pace of retrofitting rate to over 3.5% per year.”

HONG KONG BUSINESS | Q3 2022

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FIRST OVERCOMING CHALLENGES IN HK’S CONSTRUCTION

W

hilst still facing major challenges such as supply chain and labour shortages, experts believe that Hong Kong’s construction sector will be well on its way to recovery with the support of two factors.

According to Turner & Townsend’s Hong Kong Market Intelligence Report, the first key to overcoming headwinds in the construction sector is through closer collaboration between developers and suppliers.

“For real estate and infrastructure developers to tackle the current challenges in the Hong Kong market, greater attention will need to be paid to allocating risk fairly between client and contractor. This will enable contractors to build the resilience they need to navigate through and survive unexpected external events,” Turner & Townsend’s Strategic Lead for South China, Daniel Cheung, said.

A collaborative approach will likewise help real estate and infrastructure developers to mitigate the impact of tender price inflation and the competition for resources.

Based on the report, tender prices are estimated to rise between 2% to 4% in 2022.

2022 budget The other key that will push the sector further to recovery is the measures in the 2022 budget.

Under the 2022 budget, the government has expressed plans to boost the housing supply in Hong Kong, identifying 350 hectares of land for the provision of 330,000 public housing units in the coming decade.

The government of Hong Kong has also estimated the completion of private residential units to average over 19,000 units annually in the next five years from 2022.

Another measure that can help the sector is the proposed $1b fund to train and upskill workers to “encourage the adoption of new materials and modern methods of construction.”

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Strong performance from liability, property, and financial lines insurance to boost the industry

Cyber threats to grow HK’s insurance industry

R

ising cases of cyber threats is actually helping the growth of the general insurance industry in Hong Kong, which is estimated to reach more than $10b by 2026, a report by data and analytics firm GlobalData said.

The general insurance industry is projected to grow at a compound annual growth rate of 6.6% in terms of gross written premiums (GWP).

According to Jeneshree Sahoo, GlobalData insurance analyst, the growth was going to be driven by strong performance in liability insurance as well as property and financial lines insurance.

Currently, personal accident and health insurance is the largest general insurance line in Hong Kong with a GWP share of 30.8% or $2.2b in 2020. It declined by 4.8% during the pandemic however with the expected easing of restrictions, it is projected to grow at CAGR 5.1% in 2021 to 2026 reaching $2.7b.

Meanwhile, liability insurance is the second-largest line with a GWP share

Increased cases of financial frauds gave a rise in demand for insurance

of 23.9% in 2020. It grew by 8.8% in the year, driven by the growing demand for cyber insurance policies due to remote working and increased risk of cyber attacks. Additionally, increased cases of financial frauds in the last few years gave a rise in demand for directors & officers insurance.

Property insurance is also expected to contribute to the growing industry as it currently is the third-largest general insurance line with a share of 18.7%, growing by 13.2% in 2020.

The fastest growing segment is financial lines insurance, accounting for 8.3% share in 2020, growing by 60.7% in the year due to increase in premium prices following the upward adjustment of property values defined under the Mortgage Insurance Program.

Financial lines insurance, which accounted for 8.3% share in 2020, is the fastest growing segment. It grew by 60.7% in 2020 due to an increase in premium prices following the upward adjustment of property values defined under the Mortgage Insurance Program. The remaining 18.3% share consists of Motor, and marine, aviation, and transit (MAT) insurance.

Sahoo said after recovering in 2021, Hong Kong’s GDP growth is expected to slow down by 1.5% this year due to resurgence of COVID-19 cases. However, the general insurance industry will be able to overcome this hurdle, with an increase of 5.7% driven by strong performances of some of its general insurance lines.

“Hong Kong’s low insurance penetration, as a percentage to GDP, at 1.6% provides ample opportunities for general insurance growth. A gradual economic recovery, increasing cyber risks and growing commercial real estate activities are expected to support growth of general insurance over the next five years,” Sahoo concludes.

Personal accident and health insurance is the largest general insurance line in Hong Kong

HONG KONG BUSINESS | Q3 2022

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The privacy conundrum: Tackling the issue of the century

lucky that my dedication and commitment at Crypto.com and also within the broader community is being recognised by peers and industry,” said Jason.

Crypto.com executive and HKB Management Awards winner Jason Lau answers some serious questions on data privacy.

A top issue Jason’s award is a testament to how he is taking data privacy seriously. For him, privacy concerns impact corporate multinationals from all industries big and small, through to the user and consumer, as digital transformation drives greater adoption of technology in everyday lives, with accelerated growth being seen from the effects of the pandemic.

Even Apple’s CEO Tim Cook recently said that privacy is one of the top issues of the century.

“From contract tracing apps to individuals and workplaces that are adopting video conferencing and working from home, the world has been thrown into the deep end and organisations are now playing a catch-up game in order to meet the data privacy standards and regulations in order to uphold the privacy rights of the individuals,” Jason said.

What set the tone for corporates to meet data privacy standards is the General Data Protection Regulation (GDPR), when it became effective in 2018, providing one of the most comprehensive privacy regulations to date. Over the last few years, more and more regions around the world follow suit with their own respective regional cybersecurity and data privacy regulations and laws.

“When we look at it from a data security perspective, research has shown that there is one ransomware attack every 11 seconds, and there is a growth of over 20% compared to previous years and this issue will continue to grow as personal data is the new currency for hackers. On top of ransomware, industry data shows that there are 92% of breaches just in Q1 2022 due to external targeted cyber-attacks, so when you look at it from this perspective, prioritising privacy and security data needs to be board-level responsibilities at all organisations.”, Jason said.

Jason Lau, Chief Information Security Officer at Crypto.com

W

ith the increased digitisation and reliance on technology brought by the pandemic to industries and societies, making sure that these systems are secure became the top priority.

Being an established industry figure for cybersecurity, Crypto.com’s Jason Lau led the company into becoming the first company to achieve new Data Privacy Certifications ISO 27701, NIST Privacy Framework, Singapore’s Data Protection Trust Mark (DPTM), Hong Kong’s Gold Award from the Privacy Commissioner for Personal Data (PCPD), and one of the first to obtain a crypto license in Malta, and most recently obtaining a in-principle approval for a Major Payment Institution License in Singapore. These are just some of the accolades contributing to winning him the Data Privacy - Executive Of

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HONG KONG BUSINESS | Q3 2022

The Year Award at the HKB Management Excellence Awards.

Working as the current Chief Information Security Officer (CISO) at Crypto.com, Jason has been overseeing the company’s global cybersecurity and data privacy strategy. He is aided by his responsibility as the Regional Lead, Co-Chair, Advisory Board Member for the International Association of Privacy Professionals and Adjunct Professor for Cybersecurity and Data Privacy at the HKBU School of Business.

“I am extremely humbled to have won the Executive of the Year in the Cybersecurity category at the HKB Management Excellence Award last 2020, and to follow this up last year in 2021 in the Data Privacy category is a privilege and honour given the calibre of the other nominees. I have been

Ensuring data protection Jason says that data protection starts with having cybersecurity and privacy strategies supported by those from the top of their organisations.

“Whilst from a very high-level perspective, security is more about the safeguarding of assets, whereas privacy is more concerned with upholding the rights of the individuals,

EXECUTIVE OF THE YEAR - DATA PRIVACY

FROM CONTRACT TRACING APPS TO INDIVIDUALS AND WORKPLACES, THE WORLD HAS BEEN THROWN INTO THE DEEP END AND ORGANISATIONS ARE PLAYING A CATCH-UP GAME IN ORDER TO MEET THE DATA PRIVACY STANDARDS AND REGULATIONS TO UPHOLD THE PRIVACY RIGHTS OF THE INDIVIDUALS both functions have to work hand in hand in order to achieve this – and it is much harder than you think,” Jason said. He added that different organisations have very different organisational structures, and this is often the first challenge of how to drive a data privacy strategy, and whilst there is no set way to go about this, data privacy in some companies has fallen within the legal team, some have it within the risk management teams, through to some organisations having data privacy being run out of their human resources operation.

Jason pointed out that the key success factor is the existence of a Data Protection Officer (DPO), who helps provide oversight to ensure the organisation processes personal data in compliance with the applicable data protection rules and regulations, and accountability, as well as having a Steering Committee at the top to ensure that the privacy team has transparency of the different projects.

An example of an initiative is their Privacy Impact Assessments for all projects and integrated into Vendor Risk Assessments due to the growing security concerns with 3rd party supplies and maturation of their privacy programme over time, through to contractual Data Processing Agreements to ensure there are clear responsibilities with respect to data protection in a contractual manner and much more.

Jason suggested that companies should also need to be closely connected with their local privacy regulator, where Jason sits on the official Standing Committee on Technological Developments for the HK Privacy Commissioner’s Office. This helps to be up to date with the everchanging rules and regulations, and with one of the biggest challenges to come globally being the new EU Standard Contractual Clauses (SCC) requirement, which come into force December 2022, where all old SCCs would need to have to be transitioned and replaced with new ones which may pose to be a tough deadline for many companies to meet.

This will also pose a challenge and a large undertaking for multinational organisations that have complex entity structures operating in multiple jurisdictions, that also have a significant number of vendors which they may be using, making close connections with industry and regulators an essential part of

any privacy programme.

Whilst it is a challenging task to drive global cybersecurity and privacy programmes, they are just a very small portion of what goes into the strategy covering people, processes, and technology throughout an organisation.

“If companies want to make the most of their resources to improve their data protection posture, they need to ensure they align and orchestrate their teams to include data privacy in all processes and not just an afterthought at the end and thus bringing in a greater focus on corporate data privacy accountability where DPOs need to be a must-have and not a nice-to-have in order to drive a successful privacy programme in any organisation,” Jason added.

Metaverse and Web3 Looking forward, Jason also identified some of the would-be key privacy issues with rising trends such as Web3 and the metaverse.

Jason’s view on it is that Web 3.0’s immersive experience is going to take privacy concerns to a whole new level. This is in stark contrast with the transition from the physical world to the earliest forms of Web 1.0 with mainly static websites and personal sites to broadcast information and limited interactivity.

Having faced challenges over the last years, such as excessive personal data collection for profiling which in turn leads to targeted marketing, based mainly on what users click

on when browsing or using a website or app, the Metaverse potentially poses new issues where companies could be measuring everything from users’ behaviour, pupil dilation, and eye movement in reaction to different visual ads and much more whilst wearing immersive VR goggles, something which is not possible whilst you are browsing websites on your laptop.

Other concerns include the treatment of one’s Metaverse personal profile and identity once the unfortunate death of the real life person happens, as there are no clear rules yet governing personal data in a centralised or decentralised metaverse, and many more issues such as cross-border privacy rules and whether there will even be concepts of Controllers and Processors.

For Lau, the emergence of the Metaverse poses many new challenges that are difficult to answer at the moment due to the lack of precedence and its scale in terms of technology utilisation, with all of this needing to be properly debated and challenged before the large tech companies start to develop the technologies.

“In my opinion, at the core of the development of the metaverse, should be ethics; and data ethics should be the common underlying theme for any feature or function in the metaverse. I look forward to more industry sharing on these topics in the future,” Jason said.

Conference Chairperson at the Data Privacy Forum

HONG KONG BUSINESS | Q3 2022

13

HR BRIEFING

Hong Kong banks face ‘brain drain’ as talents flee amidst strict travel restrictions

More expats may leave with their families when the school year ends mid-2022.

banks such as Citigroup and Bank of America have reportedly moved some job roles to Singapore offices and other markets.

But it’s not as much as media reports have led everyone to believe, he said.

“The fact is that [just because] a certain amount of senior executives within financial services have moved from Hong Kong to Singapore, doesn’t mean that everybody is going to do that,” Mullally said.

In fact, some of the departure and movement out of the city may reportedly only be temporary, according to Michael Page’s Yung.

“Their employers either accommodate remote working for a period of time so they can go home and see their families or allow them to work from another location for the next review period,” Yung said.

However, even the recruitment firms mull that some moves could be permanent. Employers’ long-term decisions whether to stay or move out would ultimately depend on when and how fast the travel restrictions are lifted.

“If it gets to a point where there are really a lot of functions being moved out of Hong Kong to other locations, then of course it’s going to have a longer-term impact on Hong Kong,” Yung said, adding that so far, Michael Page has not observed such an occurrence yet.

Social commerce is quite an equal playing field for all brands

H

ong Kong is increasingly becoming a less desirable place to work for expatriates and even for local talent, hampered by stringent travel restrictions that wear the workers’ patience thin.

Compared to the past years, more talents based in Hong Kong have reportedly shown an interest in moving out or have already gone to other cities, recruitment firms told Hong Kong Business.

Whilst it is a stretch to call it an “exodus”, it seems that more and more expat bankers are reaching their breaking point, said John Mullally, regional director-Southern China & Hong Kong Financial Services at Robert Walters.

“There are definitely more people leaving than bankers coming in,” Mullally told Hong Kong Business. “That is a result of almost two and a half years now of people not being able to freely travel in and out of Hong Kong.”

Mullally says that it is possible that more expats leave the city after the end of the school year in mid-June.

“I’ve been here for 12 years, I’ve never seen this degree of departures going,” he noted. “An exit kind of implies a vast percentage of people going. That’s not necessarily true, [but] it is the biggest departure I’ve ever seen.”

Olga Yung, managing director at Michael Page, also noted the rise of interest from workers in Hong Kong to find work elsewhere.

“We have seen candidates in Hong Kong having an interest in exploring Singapore as an option, because of the current travel restrictions in Hong Kong,” Yung said.

Is Singapore reaping the benefits?

With Hong Kong’s reputation amongst expats souring, eyes have turned to the other financial centre in the region: Singapore. Reports swirl around a possible flight to the Lion City, which, unlike Hong Kong, has reopened travel to several countries around the globe.

There have been cases of big moves happening “more so than usual,” as per Robert Walters’ Mullally. Most notably,

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HONG KONG BUSINESS | Q3 2022

John Mullally

Olga Yung

Rouella Landicho

There are more people leaving than bankers coming in

Talent shortage still an issue Despite the Omicron wave and dwindling expat interest, the banking industry in Hong Kong has remained relatively stable and hiring remains active, the analysts agreed.

“Employers have already made plans to hire this year, either to replace headcounts spurred by the great reshuffling or to grow and expand their teams to capitalise on the increasing number of market opportunities,” said Rouella Landicho, Associate Director of Banking and Financial Services, Randstad Hong Kong.

“Retail banks, private wealth, and corporate banks are hiring relationship managers to grow and expand their customer portfolios. Similarly, the workforce size in family offices and private banks is expected to grow this year to serve the growing affluence,” Landicho said.

The other analysts echoed the same. “Sales generating roles are always going to be heavily sought after. That would include front office bankers, as well as relationship managers,” said Yung.

Yung added that all mid to back positions are in demand, including job roles in settlements, payment, credit loans, and client onboarding.

Amongst these, compliance and risk roles are the most in demand roles by banks, but are also the hardest to fill due to the scarcity of available talent.

“The reality is, there is a talent shortage overall. When there’s a lot of instability in the market, or when there’s a lot of external factors, candidates put their job searches on hold,” Yung said.

HONG KONG BUSINESS | Q3 2022

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LEGAL BRIEFING

Globally, clients are moving away from hourly rates

HK aims to regain crown as favoured arbitration hub Under the ORFS bill, lawyers can make more if their case succeeds.

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urrently, lawyers handling arbitration cases in Hong Kong usually get paid by the hour under standard fees arrangements.

But with the Law Reform Committee’s (LRC) push to finally allow legal practitioners to enter into outcome-related fee structures (ORFS), lawyers can structure a fee arrangement that specifically suits the individual client and the specific case.

Globally, clients are “moving away from hourly rates and towards sharing risk with their advisers,” Kathryn Sanger, a partner at Herbert Smith Freehills and co-chair of the Law Reform Committee’s sub-committee that proposed the ORFS changes, told Hong Kong Business.

The establishment of the ORFS regime will, therefore, attract more clients to have their case arbitrated in Hong Kong, and put the city on the same playing field as its competitors—London, New York, Mainland China, and Singapore— which are already allowing similar fee agreements.

“The sooner we sort of play catch up, and this bill comes into force, as legislation, the better,” Mark West, partner at Reed Smith Richards Butler LLP, told Hong Kong Business.

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HONG KONG BUSINESS | Q3 2022

The sooner we play catch up, and this bill comes into force as legislation, the better

Kathryn Sanger

Mark West

Compared to Singapore and other top arbitral seats, Hong Kong’s proposed ORFS regime is broader because it permits the full range of ORFS structures, namely Conditional Fee Agreement (CFA), Damages Based Agreement (DBA), and the Hybrid DBA. In Singapore, where amendments to the law were recently introduced, only CFAs are permitted.

Three ORFS regimes Under a CFA, Sanger said clients agree to pay the lawyer an additional fee, known as a success fee, in the event of a successful outcome for the client, as determined by clients with their lawyers.

“The success fee can be an agreed flat fee, or calculated as a percentage uplift on the lawyer’s usual fee or the fee that the lawyer would have charged if there were no CFA in place,” she explained.

“The client may also pay fees during the life of the matter, typically at a discounted rate. Alternatively, lawyers and clients may agree on a ‘no win, no fee’ CFA, where the client pays no fees at all unless the claim succeeds,” she added.

For a DBA, lawyers will not charge

their clients any fee during the life of the arbitration, and will only do so if the latter obtains a “financial benefit” from the case.

Lastly, if parties agree on a Hybrid DBA, lawyers will be able to charge their clients some fees during the period of the arbitration, likely at a discounted rate, as well as a DBA payment in the event the client obtains a financial benefit For arbitrations seated in or outside territory, lawyers can still charge success fees, as long as they are Hong Kong-based.

Lawyers and clients based outside Hong Kong can likewise take advantage of the new rules when working on a Hong Kong-seated case, said Sanger.

“In both cases, and in response to market demand, this provides maximim flexibility to lawyers in Hong Kong, and users of arbitration in the region,” said Sanger.

Meanwhile, West warned that the proposed safeguards and restrictions that would be applicable to ORFS are susceptible to being “navigated,” especially under a hybrid damages based fee structure. For example, lawyers can, if the client agrees, apply an enhanced hourly rate to mitigate against the risk of the success not materialising.

“The law firm acting for the claimant may have its capital or its time costs, its unpaid time costs locked up for considerable periods of time, which obviously affects cash flow. Usually, they would factor that into their model and expect some sort of return on that as well,” West said.

Sanger, however, said that this will “ultimately be a matter for lawyers to agree with their clients.”

The big winner Once the ORFS gets implemented, the biggest winner would be the clients. According to Sanger, ORFS arrangements reduce the risks inherent in pursuing a commercial claim through arbitration, like cost and duration.

ORFS will not only benefit clients on a low budget, but it can also help businesses which may want to use their cash or budget elsewhere whilst resolving a dispute.

HONG KONG BUSINESS | Q3 2022

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MARKETING BRIEFING

One chat away: Conversational commerce levels the playing field for brands online Leaving consumers with unanswered queries can result in $2m missed revenue per day.

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iona Thia, business development director at TMX, was looking for a ring online. She can only roughly estimate her ring size based on the chart posted on the store’s website. Already expecting her order to be hit-ormiss, she then received a message from the brand asking for a photo of her finger to help settle the size and assuring her that, if the item did not fit, she can have it exchanged with no additional payment. Thia also received a follow-up message to check on the item delivered.

In the end, Thia became one of the brand’s satisfied customers. This is conversational commerce at work.

“Conversational commerce focuses on messaging,” Thia told Hong Kong Business.

It is a strategy that benefits the brand itself because it enables businesses to control their own sales channel strategy and lower the rates of returns. Thia noted that processing returns is costly, takes up too much time, and businesses even have to figure out if the item returned could be shelved or just thrown away.

The adoption of conversational commerce rose in popularity as brands expanded their presence online through social media, such as Facebook and Instagram.

“It’s really about capitalising on your own followers. That’s the reason why we believe that social commerce is quite an equal playing field for all brands of different sizes and different verticals,” Thia said.

Specific sectors, such as beauty brands, can adopt conversational commerce by relying on messaging applications to sell their products and have live chat advisors to answer queries from customers. Through messaging, customers can send their photos to the brands and have the retail associates on-screen recommend the type of products suitable for them.

For fashion brands, this can also be adopted as some customers could have ordered two sizes at a time, especially when they have no idea about their size, and just have one of them returned as soon as the customers get to try on their purchased items.

The right channel When opening stores online or in a new channel, Thia said that it is important to have a proper channel strategy, taking into consideration the target audience per channel.

She noted that younger customers may be more present via social media, whilst slightly older or more loyal customers might be on the brand’s own marketplace or website.

Data from Sprout Social showed that Gen Z shoppers, or those aged 18 to 40, are the most enthusiastic to make purchases via social media, particularly on Instagram, TikTok, and Whatsapp.

In Hong Kong, one of the best channels to run conversational commerce would be WhatsApp, given that it’s the most used app in the market, AnyMind Group’s Deputy Head of E-Commerce Enablement for Japan, Mai Endo, told Hong Kong Business.

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HONG KONG BUSINESS | Q3 2022

Social commerce is quite an equal playing field for all brands

It’s really about capitalising on your own followers

Based on data from Statista, WhatsApp receives 89,600 monthly downloads, making it the most downloaded free app in the social media category in Hong Kong in April 2022.

But for brands present on various platforms, Thia cautioned that they do not “cannibalise” each channel, citing as an example the need for their products to be sold at the same price regardless of the channel.

Botversation alone is a no-no One of the main purposes of having conversational commerce is to give online consumers the experience they would have in brick-and-mortar stores: having an assistant or staff to guide buyers through their purchase.

Endo, therefore, emphasised the need for and importance of both the human and artificial intelligence (AI) elements in conversational commerce.

Leaving consumers to chatbots only will lead to unresolved chats, which, in turn, can result in an average of $2m per day of missed revenue, according to a study by customer experience solutions company, Simplr.ai.

“Chatbots can just recommend a product, but not answer consumers who have doubts on whether they should buy this colour or that colour,” Endo said, adding that as part of their product offering, AnyChat, the company can also provide a customer with a support person who operates within regular working hours.

Since the platform has yet to have a 24/7 chat support, Endo said operators can instead segment concerns by “tagging,” so the next time a similar inquiry pops up, and there’s no available person to talk to, the chatbot can answer on behalf of the personnel.

Thia echoed Endo, saying that businesses should have a person managing chats that will ensure a seamless shopping experience for customers and for the business for smooth processing of orders.

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HONG KONG BUSINESS | Q3 2022

19

CASE STUDY: CITI ASIA APAC head emphasised.

In 2021, Citi announced ambitious plans of committing US$1 trillion to sustainable finance by the end of 2030, which includes investments in education, affordable housing, health care, economic inclusion, community finance, international development finance, racial and ethnic diversity and gender equality.

“On the sustainable finance front, our bank has made huge progress on this commitment”, says Stella.

“Just last year alone, Citi raised over US$40 billion for our Asia Pacific clients from global and local capital markets,” Citi’s APAC head added.

ESG policies and practices are now integrated in APAC organisations’ corporate strategy

Supporting multinationals to uncover ambitions in Asia Citi views sustainable financing as both a mandate and an opportunity to partner clients in their ESG journey.

I

n recent times, stakeholders of firms across the board such as shareholders, employees and their customers are demanding ESG-led value creation. According to analytics firm S&P Global, shareholder activism gained momentum in 2021 and saw votes against directors for lack of credible climate action plans. The trend, which is set to continue in 2022, is placing pressure on firms to raise corporate standards.

According to a 2021 Citi survey conducted amongst 259 institutional clients in 14 markets across Asia Pacific to better understand their ESG priorities, sustainability is gaining momentum in this region. 54% of the respondents said they already have ESG policies and practices integrated in their organisations’ corporate strategy whilst close to 90% of the remaining respondents intend to roll out ESG policies and practices within five years.

When asked how Citi is helping corporates transition to a ‘green’ portfolio, Stella Choe, Asia Pacific head of Citi Global Subsidiaries Group (GSG) which serves 90% of Fortune 500 companies operating outside of their home countries, explained,

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HONG KONG BUSINESS | Q3 2022

Stella Choe

We provide advice to our investor clients on how best to transition their portfolios to sustainabilityfocused asset classes

“We provide advice to our investor clients on how best to transition their portfolios to sustainability focused asset classes. We also support many of our corporate clients in their transition to more sustainable business models and advise them on how they can create and manage effective ESG frameworks, access ESG-related financing and stay ahead of evolving regulations.”

Stella reiterated that when it comes to ESG, it is not just about the ‘E’ or environment. “Whilst the effects of climate change are some of the most significant challenges facing humanity today, there are also social and governance considerations which are equally important.”

A case in point — today, two-thirds of the world’s school-age children do not have Internet connection in their homes, according to a joint report from UNICEF and the International Telecommunication Union (ITU).

With millions of students having to rely on virtual learning during lockdowns, the digital divide has further exacerbated inequalities in the communities during this pandemic.

“Citi’s commitment to sustainability is not just limited to its clients,” Citi’s

Asia: A digital world of opportunities Beyond ESG, Stella spoke about the digital potential in Asia, which is adopting technology at a much faster pace than other regions, opening up a range of opportunities. This trend is often why multinational companies (MNCs) look to boost their global subsidiaries in the region as part of their growth strategy. In fact, according to a recent report by McKinsey, in the decade before the pandemic, $1 of every $2 in new global investment went to companies in Asia—and $1 in $3 to China alone.

“Citi has made great strides in growing its digital offerings to support the ambitions of our clients. While digital innovation has been front and centre for the bank for a long time, we are seeing new vigor to this trend,” Citi’s APAC head said.

Looking ahead Stella has outlined her plans for the next two years, saying that her key priority would be supporting clients to thrive in the post-pandemic world.

“With COVID-19 hitting the reset button on the global economy, what has worked yesterday, may not work today. Putting our customers at the forefront of what we do is critical and as we continue to transform digitally to support our clients to come back stronger, it is important to bear in mind that successful digital transformation is not all about technology. It is about elevating our clients’ experience to the next level and removing friction from the customer journey, and this is high on my agenda.”

HONG KONG BUSINESS | Q3 2022

21

CASE STUDY: STANDARD CHARTERED

Standard Chartered Hong Kong sees metaverse as future of banking

Banks can make use of AR/VR to offer more personalised services from the safety of clients’ homes.

Alex Manson

Michael Abbott

SCB Hong Kong is the first bank to acquire virtual land at The Sandbox’s Mega City (Photo: A still from SCB’s announcement video)

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ould the next frontier of banking services lie in the metaverse? For Standard Chartered Bank (SCB) Hong Kong, it just might be. The bank, through its investment arm, SC Ventures, recently purchased virtual land in The Sandbox—a blockchain-based virtual world aiming to build a vast metaverse that allows users to create and monetise their own distinct virtual worlds and unique video game experiences.

In particular, Standard Chartered Bank Hong Kong bought a piece of land in the Mega City district, touted as a culture hub based on and inspired by Hong Kong talents.

This makes Standard Chartered Bank Hong Kong the first bank to acquire virtual land or property at The Sandbox’s Mega City.

“The metaverse is all about the next phase in the internet’s evolution, bringing new possibilities and unique experiences through the use 22

HONG KONG BUSINESS | Q3 2022

of immersive technologies,” Alex Manson, head of SC Ventures by Standard Chartered, told Hong Kong Business. “Our involvement in the metaverse allows us to reimagine our relationship with existing and potential clients.”

“We chose The Sandbox as they are one of the leaders in this space and have impressed us both with their vision and their execution,” Standard Chartered’s Manson said.

“The idea of being an anchor in a virtual community focused on Hong Kong partners excites us, as we are historically one of the note-issuing banks and an anchor in the physical Hong Kong community.”

In particular, SCBHK said that it plans to use the space to explore co-creation opportunities in the metaverse, with the goal of experimenting and building new experiences for clients, as well as bringing the local sports and art communities into the metaverse.

Jess Murray

In the metaverse, banks could deliver advice and build relationships at a time when banking has become commoditised

What is Metaverse?

If your mind is beset with visions of a 360-degree full virtual reality living akin to that seen in the sci-fi film Ready Player One, you are not exactly that far off. The metaverse aims for a world in which its users can participate in or even inhabit “a persistent shared experience that spans the spectrum of our real-world to a fully virtual world and in between,” as defined by the professional services company, Accenture.

For banks, this provides the opportunity to deliver even more personalised banking journeys without clients having to leave the safety of their homes.

Standard Chartered has yet to disclose its exact plans for its newly bought virtual land. But it is likely that the bank will explore offering personalised banking services through virtual reality and augmented reality.

“In the metaverse, banks could deliver advice and build relationships at a time when banking has become commoditised and drained of emotional salience. The metaverse could put humanity back into the conversation in ways that would simply not be possible in app alerts or text messages,” Accenture’s senior managing director and global banking lead Michael Abbott, and managing director & banking & capital markets lead for North America Jess Murray wrote in a recent report.

Ignoring the metaverse is a big opportunity missed for banks: Goldman Sachs and Morgan Stanley have both estimated that the metaverse economy could be worth as much as $8t by 2030.

Other opportunities arising from the metaverse include the creation of new payments rails that power transactions in the virtual world, and the invention of new products and services–for example securing, insuring, and lending against digital assets like digital currencies.

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To learn more about QBE Hong Kong, please visit www.qbe.com/hk HONG KONG BUSINESS | Q3 2022

23

INDUSTRY INSIGHT: INSURANCE

Top three things killing the insurance industry

Thanks to these threats, 54% of insurers had an ROE below their cost of equity.

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here are three major issues that have been posing a threat to the global insurance industry for a long while now; but now well into 2022, McKinsey & Company has finally rung the alarm bell.

“These issues have now taken a greater urgency,” the global consultancy firm warned.

The three threats, according to McKinsey, are the persistently low-interest rates, which pressure spread-based businesses such as life insurance; pricing pressures driven by fee transparency, digital attackers, and lower-cost options aggravated by price comparison websites; and organic demand that is growing only slowly in already mature markets.

“The [third] is particularly worrying because growth in developed economies is coming mostly from price increases rather than from volume or new risks covered, highlighting a risk that the industry might lose its relevance over time,” McKinsey said.

According to McKinsey & Company’s Global Insurance Report 2022, these threats are said to have resulted in the worst possible outcome—half of the industry players

Globally, 50% of insurance companies have consistently traded below their book value in the past 5 years

still do not earn their cost of equity even after decades of stable returns.

McKinsey stressed that this is not a problem caused by a few underperformers, it is industry-wide.

54% of listed insurers, representing around 52% of the global industry’s equity, had a return on equity (ROE) below their cost of equity over the past five years. McKinsey said this raised questions about the long-term economic viability of their business model which investors in the public markets have taken note of.

Globally, about 50% of listed insurance companies have consistently traded below their book value in the past five years, which McKinsey said is a clear vote of no confidence in the industry and raises questions about the long-term future of insurance players, particularly in multiline insurance where about around 60% of players are trading below book value.

Talent shortage McKinsey is not the only one ringing alarm bells for the industry. Deloitte also has a similar opinion, although it sees talent shortage as the biggest threat at the moment.

Half of the industry players do not earn their cost of equity after decades of stable returns

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HONG KONG BUSINESS | Q3 2022

In a poll they did amongst global insurers, respondents said they expect to increase headcount in most of their functional areas this year.

Deloitte, however, said, “The big question insurers face is where will all that talent come from, and how will they be able to recruit and retain the skill sets to maintain and advance increasingly digitised business operations?”

An example of this talent shortage is already seen in Hong Kong. According to a survey by the Hong Kong Federation of Insurers last February, one out of three international insurers in Hong Kong are thinking about cutting back on their operations due to talent shortage.

About 30% of respondents are mulling on relocating their global and regional teams, leaving only Hong Kong-focused staff behind. Even Hong Kong’s Insurance Authority reported that it is understaffed by around 10%.

Fight for consumers Another hurdle that insurers must face is the ongoing ‘fight for customers’ with insurtech disrupters.

It is not a stretch to say that insurtech is the one driving digital innovations in the industry. Trust in insurtech is growing with investments increasing from $1b in 2004 to $7.2b in 2019 to $14.6b in 2021.

The main advantage of insurtech is that it is able to solve customer pain points through digitally enhanced client experience because they are more focused on the marketing and distribution segments of the insurance value chain.

McKinsey said this is a potential threat to incumbent insurers because it believes that a distinctive digital customer experience—provided by both insurtech and insurers—will be a prerequisite for industry-beating growth.

“Beyond distribution, superior technology and healthy margins in insurance service businesses will challenge the traditional approach of many insurers to own the whole value chain—they will be forced to form partnerships or make outsize investments to keep up.”

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HONG KONG BUSINESS | Q3 2022

25

INDUSTRY INSIGHT: RETAIL BANKING

Alternative payments dominate Asia as credit card use dwindles BNPL may not be the plastic killer everyone touts it to be, but it’s attracting underserved customers.

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redit card companies have room to sweat. Despite its current status as the so-called fintech disruptor, buy now, pay later (BNPL) alone is unlikely to overtake credit card use over the next few years.

But neither are credit card firms off the hook, with more consumers in the Asia Pacific region expected to ditch the plastic in favour of other alternative credit payment options.

Digital wallets now completely dominate the e-commerce space in APAC, making up 68.5% of the segment’s transaction value in APAC compared to only 12.8% of the share of credit and charge cards, according to data from financial technology service provider FIS’ 2022 edition of the Global Payments Report.

Card payments’ share is expected to further decline to 11% by 2025, whilst e-wallets are projected to expand to 72% of the total transaction value in three years.

BNPL currently makes up barely 1% of the total e-commerce transaction value in the region. But the service has the potential to attract consumers seeking to ditch the plastic or have trouble accessing a credit card, said Kanv Pandit, group managing director and head of sales, Asia Pacific, for FIS. “There has been a latent demand for an alternative to credit cards,” Pandit told Hong Kong Business in an interview, adding that there are two primary reasons driving BNPL. “Number one, credit cards address a very narrow segment of the addressable market, like customers who were seeking financing options.

The second is customers are seeking flexibility and simplicity.”

This ease-of-use element in payments extends not just for the consumers, but also for merchants.

“Smaller merchants have always traditionally been very cash-heavy, [but] they have had to adopt digital payments. They’ve seen the use case, the simplicity, and the safety that comes with the use of digital payments. We expect this trend to

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continue,” Pandit said.

Whilst still occupying a smaller fraction of the market, BNPL transaction value is expected to double its share to 1.8% by 2025, or US$78b of the e-commerce market to become one of the leading alternative payment methods outside of mobile wallets and card payments, FIS’ study found.

Mobile wallets as clear victors Beyond BNPL and cards, a third party is slated to become the new normal for payments: mobile wallets. E-wallets now dominate both the transaction values of e-commerce and POS payments in Asia, although the latter was heavily driven by China’s e-wallet use. The Red Dragon made up 54% of the total POS transaction value in APAC, driven by QR code payments linked to the dominant mobile wallets, Alipay and WeChat Pay. Outside of China, mobile wallet use is on the rise but not yet quite as dominant. In Vietnam, Thailand, and Indonesia, for example, cash on delivery continues to be the standard for e-commerce transactions, according to Pandit.

“But preferences are starting to change. There is greater choice and availability of e-wallets and the ease of

Kanv Pandit

APAC is a vibrant market on the adoption of alternative payment methods

BNPL transaction value is expected to double its share to US$78b by 2025

purchase, that’s slowly being realised by customers who start to adopt it,” Pandit said. “Then you have markets like the Philippines, where again, because of the effort and the push led by fintech, like GCash, we’re seeing a surge in the use of digital wallets.”

FIS is also seeing very encouraging digital wallet growth in Hong Kong, Taiwan, and Singapore—a trend that’s projected to continue to grow through 2025, Pandit added.

“APAC really is a very vibrant market on the adoption of alternative payment methods and digital wallets.

Truly, it’s been remarkable. And we’re forecasting that to continue to be the case for the next two to three years,” he said.

Out with the old, in with the new But what about the mode of payment that started it all: cash?

“Cash is gradually declining. As a percentage of payment methods, the use of cash continues to go down year on year,” Pandit said, adding that the portion of cash used as a percentage of point of sale transaction value is projected to fall from 16% in 2021 to a mere at 8% by 2025.

“But we’re not expecting the absolute death of cash anytime soon.”

HONG KONG BUSINESS | Q3 2022

27

COVER STORY

HSBC remained the bank with most employees in the city (Photo from HSBC)

Salaries soar as Hong Kong banks engage in poaching war to hire and retain talent HSBC saw its headcount fall to 20,500 in just two years as part of its restructuring.

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ong Kong banks are shelling out large sums of money to hire and retain much-needed staff amidst a shrinking talent pool. This, coupled with tough competition from their peers, has pushed up offers and counter offers to their highest rate in a decade, recruitment agents told Hong Kong Business.

The city’s banking industry suffered its biggest decline in bankers since Hong Kong Business began compiling numbers in 2013. In just a single year, the total headcount declined by 9,181 across the 17 banks included in the annual bank rankings, or 10.33% lower than their combined headcounts in the previous rankings.

Hong Kong Shanghai and Banking Corporation (HSBC) contributed to the bulk of the decrease, cutting 8,500 roles in its Hong Kong office over the past two years. That is equal to nearly a third 28

HONG KONG BUSINESS | Q3 2022

There is no external or new talent coming into the market from overseas for the last two years or so

of the bank’s Hong Kong headcount in 2020, or 92% of the total decline across the 17 banks. This is the smallest that HSBC’s staff size has ever been in the history of Hong Kong Business’ bank rankings.

HSBC had earlier unveiled plans to cut a total of 35,000 jobs across its global operations as part of a restructuring that was announced last February 2020.

Bank of China (Hong Kong) maintained its 12,000-strong headcount but lost almost 400 staff in the fiscal year 2021.

Four banks hired more bankers and staff over the year. Three of them with parents outside of Hong Kong and China: DBS Bank, Citibank, and OCBC Wing Hang.

DBS Bank (Hong Kong) reported the biggest rise, with 452 new hires during 2021. Citibank followed, with 300 new hires. The majority of these new hires are to support the bank’s growing wealth management

business, a Citi spokesperson told Hong Kong Business. Another 90 people move to work in Citi’s Hong Kong business from other cities.

OCBC Wing Hang also added 67 new banking professionals to its Hong Kong staff.

The only Hong Kong-based bank to grow its headcount during 2021 is Tai Sang Bank, which now has 36 staff compared to 30 in 2022.

Meanwhile, Standard Chartered kept its staff at approximately 6,000, the bank told Hong Kong Business. CIMB Wing Lung Bank and China Construction Bank also saw their staff remain around the same size number of staff from 2020 and 2021.

Money will not solve all problems More bankers are expected to exit the city amidst ongoing strict travel restrictions that still require at least one week of quarantine upon entering Hong Kong. This is

COVER STORY an issue for the city’s banks, which clamour for much-needed talent as they scale up operations for new business lines. “[There is] no external or new talent coming into the market from overseas for the last two years or so. That creates a different set of challenges than what we saw in 2020, John Mullally, regional director-Southern China & Hong Kong Financial Services at Robert Walters, told Hong Kong Business.

More bankers may be tempted to switch jobs. Professionals with in-demand skills and experience will see up to a 35% jump in salary when they change employers this year, according to Rouella Landicho, associate director of banking and financial services at Randstad Hong Kong.

Senior roles, such as directors, assistant directors, and vice presidents, are especially sought.

“This talent demand has been fueled by the expat exodus as well as significant business restructuring within the banking industry due to high-profile acquisitions over the past couple of years,” Landicho said.

The current hiring landscape in the banking and finance industry has also caused base salaries to shoot up between 4.5% and 10% to retain current employees.

Robert Walters’ Mullally observed that there are bankers who are now being paid at the top percentile despite their expertise and experience not matching the role they are tasked to do.

“Financial services firms are kind of throwing money at the problem in order to get people in, and also to retain them because the rate of counter offers and buybacks now is at the highest I’ve seen in the last 10 years,” Robert Walters’ Mullally said.

“That just shows a degree of–for the lack of a better term– desperation that current employers have now because they’re operating with very little fat, and they really need these people in the seats in order for the business to be operating effectively,” he added.

The best way to retain talent is not just adding more zeros to

bankers’ salaries, but offering better work-life balance and even hybrid working situations, said Olga Yung, managing director at Michael Page, who observed that bankers’ are keener to learn the working arrangements of their prospective employers.

“Companies that have clear policies in place where they support it and allow [remote working or flexi-work arrangements are] very attractive to candidates,” Yung said.

Companies that support international mobility or the chance to work overseas are also a huge sell.

“A lot more candidates are considering, ‘Am I going to stay permanently in one location? Or do I want the option that I could move somewhere else down the line?’ Having these options, which may not necessarily materialise immediately, is often appealing for them,” Yung said.

John Mullally

Olga Yung

Rouella Landicho

Hybrid working Whilst the biggest banks in Hong Kong have resumed working back

in the office, many are exploring or have opted to adopt hybrid working environments.

Standard Chartered Hong Kong has welcomed close to 60% of its colleagues back to the office beginning April. But hybrid working is not off the charts yet, with the bank’s “Future Workplace, Now” work strategy, wherein their staff reportedly have the freedom to choose to work either from home or the office if that fulfills the job requirement and regulatory expectation, a spokesperson told Hong Kong Business.

Citi Hong Kong is close to having 90% of the staff working back in their office as of May 2022.

They have also enacted their own long-term flexible work model: “How We Work.”

Under this, every role at Citi will have one of three designations – Hybrid, Remote, or Resident.

The majority will reportedly be designated as hybrid workers, with the expectation of working in the office at least three days per week, a Citi representative said.

OCBC Wing Hang is one of the few banks listed who grew its headcount

HONG KONG BUSINESS | Q3 2022

29

RANKINGS: BANKS 2022 RANKING

BANK

Number of Employees 2022*

Number of Employees 2021

2021 RANKING

CEO OR COUNTRY HEAD

1

HONG KONG AND SHANGHAI BANKING CORPORATION

20,500+

29,000

1

Luanne Lim

2

BANK OF CHINA (HONG KONG)

12,165

12,557

2

Sun Yu

3

HANG SENG BANK LIMITED

7,881

7,881

3

Diana Cesar

4

STANDARD CHARTERED BANK

6,000

6,000

4

Mary Huen

5

THE BANK OF EAST ASIA, LIMITED

5,057

5,576

5

Adrian LI Man-kiu and Brian LI Man-bun

6

CITI HONG KONG

4,600

4,300

6

Angel Ng

7

DBS BANK (HONG KONG) Limited

4,452

4,000

7

Sebastian Paredes

8

DAH SING BANK

3,014

3,079

9

Hon-Hing Wong (Derek Wong)

C

M

Y

9

INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA)

3,003

3,097

8

Wu Long

CM

MY

10

CHINA CONSTRUCTION BANK (ASIA) CORPORATION

2,500

2,500

10

Jun Zhang

CY

CMY

11

OCBC WING HANG BANK

2,171

2,104

11

Ivy Au-Yeung

12

CHINA CITIC BANK INTERNATIONAL

2,000**

2,000

12

Bi Mingqiang

13

SHANGHAI COMMERCIAL BANK

1,872

1,896

13

David Sek-chi KWOK

14

CMB WING LUNG BANK

1,751

1,751

15

Hong Bo

15

CHONG HING BANK

1,700+

1,758

14

Jianxin Zong

16

PUBLIC BANK

1,260

1,362

16

Tan Yoke Kong

17

TAI SANG BANK

36

30

17

Cheung Yau Shing

TOTAL

79,710

88,891

* As of December 31, 2021 ** Figures retained from 2021 rankings

30

HONG KONG BUSINESS | Q3 2022

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HONG KONG BUSINESS | Q3 2022

31

STARTUP

How Coherent turns Excel sheets into improved business systems

It frees companies from 95% of the costs incurred from the manual spreadsheet-to-API conversion. and cloud migration programs,” Brisco said.

“It also frees up alreadystretched IT teams to focus their specialised and scarce resources on truly innovating for the business,” he added.

With everything done in a single click, Brisco said what is left to do for businesses is to just tag key inputs and outputs of how their logic or model works.

Coherent helps companies save up to 99% of the cost they would incur if they had done the spreadsheets manually

A

company running critical business operations typically uses and monitors over a thousand spreadsheets, based on the data from Forrester. Imagine the horror of a firm bound to overhaul its system. This is where John Brisco’s co-founded startup, Coherent, is planning to come in.

Coherent developed a software as a service (SAAS) called Coherent Spark. In a single click, the service turns spreadsheets containing the business logic—rules, formulas, or data models—into application programming interfaces (APIs) that can connect to other front- and back-end applications.

“Businesses change so frequently and so fast that systems cannot keep up with the market conditions. What enterprises do is make changes on [and manually translate into codes its] Excel or spreadsheets… which takes a lot of time and cost and effort within organisations,” Brisco told Hong Kong Business.

A coherent process So how does the Coherent Spark software work? An example would

32

HONG KONG BUSINESS | Q3 2022

John Brisco

What we’re trying to do is remove complexity that exists within enterprises

be an insurance company planning to re-rate its products and services.

To do so, the insurance company would first have to make changes in its spreadsheets that contain its business logic, upload the spreadsheet to Coherent Spark, turn them into active APIs, and deploy it to any system at a click of a button. “[The insurance company] now have the ability to re-rate its whole book in a matter of a few minutes, which used to take essentially a couple of weeks,” Brisco told Hong Kong Business in an interview.

“What we’re trying to do is remove complexity which exists within enterprises, whether it’s large or small,” he added.

Brisco said Coherent helps companies save up by 95% to 99% of the cost they would usually incur if they have done the spreadsheets to APIs process manually.

Brisco said the use of Coherent Spark also allows for a seamless way of work for both a company’s business and IT teams as it can be used by even people who are not overly technical.

“Coders and non-coders alike can accelerate digital transformation

Future plans Brisco said Coherent Spark is already working to improve the infrastructure of their platform, to make it more accessible and easier to use for customers.

“I want to work with clients and partners on how we can expand its features capabilities and its use cases,” the Coherent CEO said on future plans for the startup.

On the business side, Brisco said talents who will focus on engineering sales, and product and customer success will be brought to their team. He also unveiled plans to further expand in Asia and in North America and increase the startup’s distribution scale.

Coherent has raised a total of US$89m for its Series A and Series B funding rounds.

Its Series B funding, which raised US$75m, was led by Maverick Capital, including Maverick Ventures, with participation from Owl Rock, a Blue Owl division, GreatPoint Ventures, and existing investors Cathay Innovation and Franklin Templeton.

When asked why they decided to invest in the startup, Albert Koh, investor at Owl Rock, a Blue Owl division, said: “Coherent Spark bridges the gap between the fast deployment of business applications and the familiarity of using spreadsheets, and Coherent is uniquely positioned to enable enterprises to accelerate their digital transformation and drive quicker time to value.”

HONG KONG BUSINESS | Q3 2022

33

INDUSTRY BRIEFING: NFT ART

Compared to traditional art, artists get to reach a wider audience in the digital space (Photo: ‘Drowning in Love’ by MonoC)

A new canvas: Why artists are jumping into the NFT space

Entering the space allows an artist to earn more through royalties each time their art sells.

A

rtist Lakshmi Mohanbabu would usually get a one-time earning for a piece of art she sold in a gallery. When she took a dive into the non-fungible token (NFT) space, she realised that she can gain more than that.

In an interview with Hong Kong Business, Mohanbabu said artists can get a percentage of a future resale of their NFT-minted artworks because they are allowed to impose a royalty fee unlike with physical art.

“In traditional galleries, when my art is sold to a client and I make, say a hundred dollars, that’s it. If that client resells my artwork for a million dollars, it’s of no benefit to me as an artist,” Mohanbabu said.

“In the NFT space, I get to earn from the subsequent sales of my art.

If it is resold for a million dollars, I’ll get 5% of that. I’m assured of revenue every time my art sells again,” she added.

Mohanbabu said she also likes that 34

HONG KONG BUSINESS | Q3 2022

she gets to track where her art goes or who the current owner is.

Compared to traditional physical artworks, artists also get to reach a wider audience in the digital space, said Mohanbabu.

This was echoed by Tokenize Xchange CEO Hong Qi Yu, saying that artists can leverage the internet to connect with a lot of buyers, unlike when selling traditional art in galleries which is constrained by physical locations.

A stroke of challenge Whilst the gains from selling NFT art seem tempting, Mohanbabu warned artists of challenges that come along as they enter the space given that it is relatively new and unfamiliar territory for many buyers.

The first hurdle Mohanbabu had to overcome was to identify which platform she should sell her artwork on. From experience, she suggested that artists choose a

In the NFT space, I’m assured of revenue every time my art sells again

platform that is multicurrency since a lot of buyers are not yet familiar with cryptocurrencies. Her current project is with a multicurrency platform Virtua, Dubai.

She added that it is equally important for artists to choose a platform where they can easily mint their artwork. An example of this is ElemintNFT, the brainchild of Hong.

ElemintNFT simplifies the minting process of an artwork by simply uploading it on the platform, without going through the hassle of creating smart contracts, Hong told Hong Kong Business.

A smart contract is an agreement between the seller and buyer of an NFT executed through computer codes, something which may be difficult to do for traditional creators who are unfamiliar with the technical know-how.

The other main challenge to entering the NFT market is how to stand out, given the sheer volume of

INDUSTRY BRIEFING: NFT ART art that is already in the space. One way Mohanbabu overcomes this is by making digital counterparts of her physical artworks, which could then be translated and transferred into the metaverse.

Currently, Mohanbabu is working on a range of artworks based on her shoe designs. The collection will include actual shoes, 3D models and prints of the design, and a book of all the prints which will also have a counterpart in the metaverse. This also involves a collaboration for printing Mohanbabu’s shoes with the Singapore Centre for 3D Printing (SC3DP), Nanyang Technological University.

Whilst you can buy the physical painting and 3D models of the shoes, you can also buy the same book, shoes, or paintings as NFTs in the metaverse—so you actually have a shop in the metaverse. Your avatar [in the metaverse] can also wear those shoes,” she added.

Mohanbabu also has a project called “To the Moon and Beyond” that features 3D interaction cubes rendered as NFT. The project accompanies her artwork “The Cube of Interaction” which has been sent to the International Space Station on 19 February 2022 where it will remain for ten months and finally go to the Moon by 2025.

“What’s interesting is that, since the physical counterpart of the NFTs will be at the International Space Station, the buyer of the NFT can look up in the sky and say that they own the work of art that is flying above them,” she said.

In doing the space and shoe projects, Mohanbabu said what she had in mind was to create art that not only bridges the gap between the traditional and digital spaces, but also art that has international appeal.

“The buyers of NFT art are very different from the buyers of traditional art. For an NFT buyer to see value in your work, you have to be completely different,” she said.

Interactive art One of the most appealing and celebrated types of artwork, not only in the NFT space, but also in the art world in general, is interactive art, according to Mohanbabu.

In Hong Kong, brand tech group, Gusto Collective, is amongst those

leading in the creation of interactive art. Earlier this year, it was able to auction off an NFT art titled “Drowning in Love,” created by their meta-human project, MonoC, which sold for $189,000.

Apart from being created by a meta-human, what made “Drowning in Love” unique was it was created using a technique called “generated data art.”

“We created the foundation of the art which consists of MonoC floating on a pond, looking up to the heavens. Then we have flowers covering her. The idea is, she’s dreaming about what falling in love feels like and, because she’s a virtual human, she has actually never been in love,” Aaron Lau, founder and CEO of Gusto Collective, told Hong Kong Business.

“What we did then is we created an algorithm that controls the blooming of the flowers, the movement of the waves, and so on. This algorithm is powered by the actual auction data during the seven-day period. Every click on the auction site, every look at a piece of work, it’s collected as a data point. If you happen to bid on a piece of art— doesn’t matter which piece of art—it becomes a data point,” he explained.

“We use the different data points.

One set of data points controls the waves, another set controls the flowers. The artwork becomes complete after all the data points are collected at the very end of the auction,” he added.

Lau said the idea behind the artwork was really to bridge the

Lakshmi Mohanbabu

Hong Qi Yu

Aaron Lau

For an NFT buyer to see value in your work, you have to stand out

connection between the investment in and creation of art. In July, Gusto Collective also launched a collaborative art piece for the Hong Kong government called “Garden of Eden,” where visitors can digitally grow flowers.

“On-site, you will have to download an app to experience the art. When you turn on the app, you will see a seed on your phone and you will be given instructions to plant the seed on the ground that we’ve created. You can then choose a cyber flower to be planted. You will see the flower grow right in front of the eyes until it’s fully bloomed.

Once fully bloomed, it will fly up to the skies of Hong Kong,” Lau shared.

Success in NFT space Whilst having unique art can give artists a boost in the NFT art world, Lau advised those planning to enter the space to do some sort of digital marketing around the art that they create.

“Often, Instagram, Twitter, and Telegram are being used as the information channel. But, from my understanding, Discord is where all the crypto folks aggregate. You need to market it to a discussion forum that focuses on NFT art,” Lau said.

Mohanbabu, for her part, said the key to achieving success in the NFT space is a mix of appealing artwork, a good platform, and an element of luck.

“It is also good to know what is trending and follow that a little bit, but not completely because it’s good to set your own trends,” she said.

ElemintNFT simplifies the minting process of an artwork without going through the hassle of creating smart contracts

HONG KONG BUSINESS | Q3 2022

35

INTERVIEW

The fate of CLP Power amidst netzero transitions Since 2020, it has increased its gas-fired power generation proportion.

W

ith 15% of its generation mix coming from coal in 2020, CLP Power is in the middle of its energy transition journey when the Hong Kong Government declared its intention to be carbon neutral before 2050. It seems that the company already has its strategies in place to align itself with the government’s target.

To replace coal, CLP Power will ramp up its generation from natural gas—which already accounts for 48% of its mix in 2020, CLP Power Chief Operating Officer Paul Tomlinson told Hong Kong Business.

“CLP Power will be in discussion with the government on phasing out coal-fired generation from our Castle Peak B Power Station’s units in the 2030s whilst our older coalfired generation units at Castle Peak A Power Station will gradually be closed over the next few years,” he added.

Tomlinson also discussed the company’s plans and other sectors it will tap into to align its operations with the Hong Kong Government’s carbon neutrality plan.

How will you accelerate phasing out coal-based assets?

We will increase the use of natural gas in the interim period, which is supported by our further investment in Black Point Power Station where a new gas-fired generation unit has been commissioned, and another unit is expected to go into operation by the end of 2023.

We have already announced plans to phase out coal for power generation at Castle Peak A Power Station progressively in the next few years. We also aim to phase out coal resources at Castle Peak B Power Station from the mid-2030s onwards.

At present, CLP Power receives gas from China National Offshore Oil Corporation’s different gas fields in the South China Sea through the Yacheng sub-sea pipeline. We also take supplies through a subsea pipeline connecting to the Second West-East Gas Pipeline under a long-term gas supply agreement with PetroChina.

To access competitive supplies from the global liquified natural gas (LNG) market in long term, CLP Power is developing an offshore LNG terminal in Hong Kong waters, jointly with Hongkong Electric. Considerable progress has been made with the jacket and topside structures installed to form the terminal. The subsea pipelaying works have been completed, and the corresponding jetting and rock dumping works are in progress.

Under this energy transition, CLP Power’s carbon intensity is projected to further decrease steadily in the coming years with the increased use of natural gas, the commissioning of additional gas-fired generation units, and when an offshore LNG terminal and a Floating Storage and Regasification Unit are in place.

Tell us about the new gas-fired generation unit at Black 36

HONG KONG BUSINESS | Q3 2022

Paul Tomlinson, COO, CLP Power (Photo from CLP Power)

Our emissions have fallen by more than 90% since 1990

Point Power Station. How is this instrumental in Hong Kong’s overall clean energy transition?

CLP Power became the first power company in Hong Kong to use natural gas for power generation in 1996 when Black Point Power Station began operations. Since then, we have continued to improve emissions performance by optimising our fuel mix, installing emission-reduction facilities, and enhancing plant efficiency. Remarkably, our emissions have fallen by more than 90% since 1990, whilst electricity demand over the same period has grown by over 80%.

As Hong Kong works towards a target of becoming carbon neutral before 2050, we are increasing our lowcarbon electricity supply and helping customers reduce their carbon footprint. Raising the ratio of gas-fired generation is an important near-term measure in CLP Power’s energy transition journey. It also aligns with the CLP Group’s updated Climate Vision 2050, in which CLP commits to achieving net-zero greenhouse gas emissions across its value chain by 2050.

We planned to build two additional gas-fired generation units to meet the demands of continuing social and economic development, whilst reaching the government’s target of increasing gas-fired generation to around half of the city’s total fuel mix.

The first new unit D1 went into service in 2020. It has a generation capacity of 550 megawatts (MW), the largest

INTERVIEW of all existing gas-fired units in Hong Kong and sufficient to power 900,000 homes. The unit uses Combined Cycle Gas Turbine (CCGT) technology with an advanced design capable of achieving an efficiency rate of around 60%, making it one of the most efficient gas-fired power plants in the world. With Unit D1, we significantly reduced our reliance on coal-fired generation. As a result, the proportion of natural gas in our fuel mix rose to around 50% in 2020, from less than 30% in 2019. Also, the carbon intensity has fallen significantly from 0.95 kilograms (kg) in 1990 to 0.37kg per unit of electricity consumption in 2020.

To continue the phasing out of the coal-fired generation units, we are building a second new gas-fired generation unit, Unit D2, at Black Point Power Station. The second unit is expected to go into operation in 2023 and will further increase the proportion of natural gas in CLP Power’s fuel mix to over 50%.

What sets the D1 unit apart from other gas-fired generation units?

Unit D1 deploys state-of-the-art H-class CCGT technology with a more advanced design and is capable of achieving an efficiency rate of around 60%, making it one of the most efficient gas-fired power plants in the world.

Fuel efficiency and flexibility are central to the design of Unit D1. It is engineered to use a wide range of gas supplies and is also a dual fuel unit with the capacity to switch to emergency backup fuel and with the capability for automatic on-load fuel transfer to ensure a reliable supply of electricity to our customers.

Unit D1 is also equipped with a low nitrogen oxides combustion system and a selective catalytic reduction system that reduces 40% more nitrogen oxides emissions than CLP Power’s other gas-fired generation units.

In addition, Unit D1 attains the Final Platinum rating of the BEAM Plus, which is the green building assessment tool in Hong Kong. The green and sustainable features include access to natural light, energy-efficient electrical fixtures and appliances, an extensive rainwater harvesting system, rooftop solar panels, and vertical greening, supporting energysaving and promoting sustainability.

How will you encourage consumers from the commercial and industrial sectors to shift to cleaner energy?

We will keep abreast of developments in technologies that utilise renewable energy for electricity generation. At the same time, we are working on ways to convert our local gas generation infrastructure to support the use of zero-carbon fuels such as green hydrogen.

CLP Power will be in discussion with the government on phasing out coal-fired generation from our Castle Peak B Power Station’s units in the 2030s whilst our older coalfired generation units at Castle Peak A Power Station will gradually be closed over the next few years.

We also strive to explore practical local renewable energy opportunities despite limited renewable energy resources and land scarcity in Hong Kong.

Also, we have seen a growing interest in sustainable products, such as Renewable Energy Certificates (RECs).

As of end-March 2022, over 24.8 GWh units were sold, and our customers are helping to reduce about 9,900 tonnes of carbon dioxide emission.

CLP Power also plays an important role to facilitate the

CLP Power will be in discussion with the gov’t on phasing out coal-fired generation units in the 2030s

decarbonisation of the transportation sector which accounts for 19.7% of Hong Kong’s greenhouse gas emissions in 2020.

CLP Power has set up 54 electric vehicle (EV) charging stations in our supply area and the charging service is free for users until the end of this year. We are also working with the government and private sector on developing e-transport trials of buses, public light buses, taxis and ferries. We anticipate that EV technology will develop rapidly, and we will adjust our strategy from time to time.

We will continue to support the government by helping customers manage energy demand and promote energy saving with a host of energy-efficient solutions and support measures including the Eco Building Fund, Electrical Equipment Upgrade Scheme, and training courses under the Retro-Commissioning Charter Programme, as well as innovative technology applications.

To support Hong Kong’s transformation into a smart city, CLP Power is upgrading all its residential and small to medium-sized business customers’ conventional metres to smart metres from late 2018 to 2025, with a total of 2.6 million smart metres. We also engage the wider community for low-carbon living through energy efficiency and conservation public education programmes.

What other sectors will CLP Power tap into to contribute to Hong Kong’s net-zero goals?

Green hydrogen has the potential to be a key part of Hong Kong’s decarbonisation plan in the medium to long term.

As the cost of producing RE goes down and the demand for hydrogen goes up, there is hope that zero-carbon green hydrogen will become an important contributor to emissions reduction.

CLP has committed to investing in several key gas power infrastructure projects, which are the most effective way to quickly reduce the carbon intensity of Hong Kong’s electricity supply. These gas infrastructures could potentially be repurposed to use 100% hydrogen.

In future, when the hydrogen power generation technology becomes mature and sustainable, the cost of retrofitting the existing gas-fired generation units (like Unit D1) to run on hydrogen power is expected to be much lower than building a new one.

New gas-fired generation unit D1 (Photo from CLP Power)

HONG KONG BUSINESS | Q3 2022

37

INDUSTRY INSIGHT: NUCLEAR POWER

Could phase-outs harm Asia’s nuclear energy growth?

The region is expected to bring 30GW in electricity per year with 32 reactors under construction.

Investments in the nuclear sector are driven by large Asian countries (Photo: Power plant in Tianjin, China)

W

hen France, the US, Sweden, and Russia shut down their 40-yearold nuclear reactors, the global nuclear capacity inevitably lost 5.4 gigawatts (GW). Now that plans to phase-out nuclear reactors in some Asian countries hang in limbo, will the region also risk losing a portion of its capacity? A report from Rystad Energy says otherwise— phase-outs will barely scathe Asia’s nuclear capacity growth.

“Many countries in Asia are ramping up the contribution from nuclear power so the nuclear phase-out plans or to reduce the dependency on nuclear power will not have a significant effect in the near term,” Karan Satwani, Rystad Energy, Analyst, Energy Services, told Hong Kong Business.

Next to Europe with more than 170 nuclear reactors in operation, Asia leads the growth of installed capacity. The region has about 140 nuclear reactors and is the main driver of growth with 32 nuclear reactors in the works that will generate 30GW in electricity annually. This is largely driven by China, which has at least 150 new nuclear power plants planned in the next 15 years.

In an exclusive interview, Satwani discussed further the

38

HONG KONG BUSINESS | Q3 2022

growth potential of nuclear energy in the region as well as continuing challenges that it faces.

What markets are driving the investment in nuclear energy and reactors in Asia?

Investments in the nuclear sector are driven by large Asian countries like China. The government bodies in Asia are planning to increase the share of nuclear power. China aims to have 70 gigawatt electrical (GWe) of operational nuclear power capacity by 2025, with ambitions to reach about 180GWe of operational capacity by 2035.

Karan Satwani

What are possible challenges to the growth of nuclear energy that could emerge in the region?

The long time lag between planning and operating a nuclear reactor could be one of the main reasons that might affect the targets set by various government bodies.

This might be due to financing of high capital costs, licensing and regulatory approvals, coupled with long lead times and construction delays, amongst other factors.

What can governments do to improve the political and economic environment for the development of nuclear energy?

Phase-outs will barely scathe Asia’s nuclear capacity growth

Commercial nuclear power is sometimes viewed by the general public as a dangerous or unstable process based on the previous global nuclear accidents. This can be minimised by sharing factbased information about nuclear energy through social media and efforts to educate the public on the actual pros and cons of harnessing nuclear energy.

The policymakers can also make use of advancements in technologies to extend the lifetime of the aging plants which could be an economically feasible option to maximise the output.

What is the role of nuclear energy in the clean energy transition?

Should it be considered as ‘green’?

Nuclear plants generate electricity through fission, without any fossil fuel combustion. Having the lowest land requirements of the lowcarbon energy sources can generate power 24/7 unlike wind and solar.

Although it requires high capital cost upfront, nuclear operations can be cost-competitive with renewables over the long run.

Many countries have committed to increasing the share of power from nuclear energy to meet the Paris Agreement targets.

But the political and economic environment, and the public lack of support, could make the prospect of accomplishing these ambitious objectives difficult. However, there is a need for innovation in replacing plants reaching the end of their lives, and adding new plants to the existing fleet.

On the positive side, nuclear power has been identified as a clean, low-carbon power source that has a long lifespan. On the flip side, it continues to be subject to concerns regarding the handling and disposal of spent radioactive fuel, fears of nuclear calamity due to plant core meltdown, and worries about the weaponisation aspects of radioactive materials.

HONG KONG BUSINESS | Q3 2022

39

ANALYSIS: FINANCIAL SERVICES

SMEs embrace flexible payments as consumers seek digital options This is accompanied by the rise of biometric authentication to safeguard accounts.

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merging digital payments are increasingly in demand as a force in the payments sector—and even small and medium enterprises (SMEs) are forgoing the cold hard cash in favour of e-wallets and fast, flexible payment options in order to accommodate their cashstrapped customers.

Mastercard’s New Payments Index 2021 found that over nine in 10 (94%) people in Asia Pacific (APAC) were considering using at least one emerging payment method such as cryptocurrency, biometrics, contactless, or QR code last year.

“We’re seeing higher interest and adoption of flexible payments options amongst merchants, especially amongst SMEs,” Safdar Khan, Division President, Southeast Asia for Mastercard, told Hong Kong Business.

He added that SMEs are especially showing enthusiasm for Buy Now Pay Later (BNPL) products.

Even prior to the pandemic, consumers have already been seeking alternative payment methods in large part thanks to the rise of online shopping. In Southeast Asia, IDC predicts that e-commerce spending will more than double by 2025 to reach US$179.8b. Of this, 91% will be paid via digital payments.

“As more businesses moved online, consumers explored new ways to shop and pay. [And] as governments continue to drive cashless agendas involving both public and private sectors to ensure that a switch to a cashless society is as smooth and gradual as it needs to be, businesses that can provide multiple ways to shop and pay will be able to successfully meet new demands and challenges,” Khan added.

Just smile and wave The rise of online payment options is also pushing up interest amongst consumers on safeguarding their online accounts, but without friction.

This has given rise to a new security feature trend: biometrics.

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“A key notable consumer trend is biometrics – because consumers want to make payment fuss-free, and as convenient as unlocking their phone,” Khan noted.

Indeed, Mastercard’s survey found that over six in 10 or 62% of respondents from Asia Pacific said they would feel safer using biometrics to verify a purchase than entering a pin code.

Almost the same percentage of Asia Pacific consumer respondents (64%) indicated excitement about the potential of biometric verification as a payment method.

Stores are embedding new biometric verification options in their payment terminals. For example, Mastercard is piloting its Biometric Checkout Program, which allows shoppers to pay with just a smile or a wave of their hand.

“No more fumbling for their phone or digging through their bags for their wallet,” Khan said, adding that “merchants also stand to benefit from faster transaction times and shorter queue lines to greater hygiene and heightened security.”

Whilst Mastercard’s biometric checkout program is only available in Brazil for now, with more APAC consumers clamouring for biometric payment options, Khan floated plans to roll-out the service in Asia and the Middle East in the near future.

Installments Amongst flexible payment methods, installments are once again on the rise, driven by consumers still tightening their boots during the pandemic and the emergence of fast, digital installment services—with BNPL at the forefront.

“Many [consumers] have adopted BNPLas a payment method, including for everyday small purchases. Our research shows that 43% of consumers in the Asia Pacific are willing to increase spending by 15% if they were

Safdar Khan

No more fumbling for their phone or digging through their bags for their wallet

to pay in installments,” Khan said.

As for concerns about bad loans arising from BNPL, Khan said that companies—and in particular, Mastercard, which is one of the first in the APAC region to debut a BNPL solution in the market—have designed ways to ensure that users can repay their installments.

“Unlike traditional Buy Now, Pay Later payment method, a bank’s cardholder is drawing down on existing credit limit, with no additional credit. This means Mastercard Installments allows consumers to enjoy the flexibility of managing their finances and yet not spend beyond their means,” Khan said.

A trinity of challenges SMEs in Asia still notedly struggle to adopt their consumers’ digital needs.

Khan summed up their key problems: reliance on cash; outdated payment options; and lack of access to credit.

SMEs continue to conduct their business operations in cash, and some may have adapted to digital payments, but are using outdated payment technologies, Khan observed. This largely results from higher costs associated with upgrading payments technologies, something SMEs do not want to take on due to limited resources, Khan said.

As more businesses moved online, consumers explored new ways to shop and pay

HONG KONG BUSINESS | Q3 2022

41

CASE STUDY: WORKPLACE EQUALITY

Women in insurance: What’s blocking the way to equality

Unconscious bias and ‘double shifting’ are just some of the known hurdles.

W

omen’s representation across all levels of the corporate ladder gained ground in 2020, according to the Women in the Workplace 2021 report by McKinsey. But persistent problems still plagued especially the insurance industry, blocking the way to diversity and equality. One hurdle, in particular, is unique to Asian women. It is called double shifting.

The term double shift, also known as double burden, means that a woman is expected to work to earn money and, at the same time, be responsible for unpaid domestic labour. This was discussed by Violet Chung, McKinsey & Company, Partner, as she guested in the “Accelerating diversity in insurance” podcast by Kweilin Ellingrud, Senior Partner, Director of McKinsey Global Institute, and Leader of the Life Insurance Practice in North America at McKinsey & Company.

“You do your work at work, and then at home, you are expected to take care of your family. It’s a societal expectation in many Asian communities—and it’s affecting a lot of women, especially in COVID-19 times,” Chung explained.

Because of double shifting, 42%

Violet Chung

Kweilin Ellingrud

We have societally ingrained notions that a woman is going to prioritise her family instead of her job

of women say they are burned out, with some women interviewed

by McKinsey & Company saying they are still expected to support their colleagues more than their male counterparts.

Women are actually more burned out this year than the previous year, Chung said. In a Deloitte report, 53% of women surveyed said that their stress levels are higher than they were a year ago. This is making it harder for women to switch off from work and have their personal time.

Of those surveyed, 34% rated their ability to switch off as poor; with 42% of these women worried that their career progression will be affected if they are not constantly available for work.

‘Less valuable employee’ Another problem is unconscious bias.

Ellingrud cited an experiment they did in which they showed a group of people identical résumés with all the same bullet points, same font size, and same font type. One résumé showed a typically male name whilst the other holds a typically female name. They found out that 87% of the time the female is less likely to get the job.

“Both men and women in the

Equality does not just affect leadership in the insurance industry – it could well affect the industry’s profits in the future

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group ascribe greater leadership and higher future potential to the imaginary John Doe. And that’s both conscious and unconscious bias that has been societally ingrained. That doesn’t just affect women and men at the entry-level—that affects people across the talent pipeline, as well” Ellingrud said.

This is because we have societally ingrained notions that a woman is going to prioritise her family instead of her job and, therefore, will be a less valuable employee, she added.

Not just an internal issue Equality is not just an issue affecting leadership in the insurance industry.

It could well affect the industry’s profits in the future.

In a report by Swiss Re in 2019, gender equality could bring an additional $2.1t in insurance premiums by 2029 or around a 45% increase in Asia. Additionally, under a gender parity labour market scenario, the health protection gap in 12 markets in Asia can be reduced by 11%.

Bridge across differences A way to help increase equality and diversity in the insurance industry is through mentorship and sponsorship, Ellingrud said.

McKinsey’s research shows that female leaders are supporting their teams between six to 11 more percentage points than the average male manager, providing emotional support, managing overall well-being, and ensuring that their team members have manageable workloads.

“I have seen some insurance carriers make the bold move across senior leadership teams to ask people, [‘Do you mentor someone who is different from you?’] That pushes leaders to bridge across differences, meet new people, and get outside their comfort zones. If we can hold each other accountable for who we mentor or sponsor, that’s when we’ll start to make a difference,” Ellingrud said.

According to Ellingrud, an action that leading companies have taken is setting a clear and aspirational goal— not a quota but a target that the entire company wants to get to—and then cascading that accountability across each line of business and function.

HONG KONG BUSINESS | Q3 2022

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ANALYSIS: CLIMATE RISK

Climate risk is burning billions and Asia remains vulnerable In 2021, the costliest recorded natural disaster in the region topped US$2b.

N

atural disasters are definitely inevitable, but what continues to worry insurers is that these catastrophes are costing them a heftier price tag than ever. In Aon’s Weather, Climate, and Catastrophe Insight, global economic losses for 2021 alone were estimated to be around $343b with only $130b insured.

This marks the seventh costliest year on record, with a protection gap of at least 62%.

Whilst this is not a recordbreaking year, far below the peak losses of $615b in 2011 and $532b in 2017, it was still above the average of $272b and the median of $265b of the 21st century.

Comparing the last decade, between 2011 to 2020, economic losses were just 4% higher than the average and 15% higher than the median.

Economic losses were found to be solely resulting from weather- and climate-related events defined as atmospheric-driven phenomena, totalling $329b. This is the thirdhighest loss on record.

Aon pointed out that driving the cost of these economic losses that topped the $20b global threshold in 2021 was just four individual environmental events, namely Hurricane Ida, the July Flooding in Europe, the Summer

Our interconnected and interdependent global system is incredibly fragile and vulnerable

Season Flooding in China, and the February Polar Vortex in North America.

These four economic losses collectively topped $300b. If this continues, it would be impossible for insurers to properly cover these losses without a hike in premiums.

Gillian Tan

Asia’s vulnerability Speaking at the Willis Towers Watson (WTW) Asia Pacific Risk Virtual Conference, Gillian Tan, Assistant Managing Director of the Development & International Group of the Monetary Authority of Singapore, stressed the urgent need for climate action, especially in Asia, as it is geographically prone to natural catastrophes.

“The costliest natural disaster in 2021 was the flood in Henan province in July which resulted in a total economic cost of over $2b as of September last year, and this number is only expected to head north,” Tan said.

In Aon’s report, economic loss from flooding events between 1 June to 30 September 2021 in China stood at $30b. This makes it the number one most significant natural disaster event in 2021 in the Asia Pacific (APAC).

Aon said flooding events make up 55% of the economic losses in

The costliest natural disaster in 2021 was the flood in China’s Henan province with a total economic cost of over US$2b

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2021, with China flooding events being the most significant natural disaster event for the second year in a row.

What is even more alarming is that, out of the $30b, only $2b were logged as insured losses. Out of the $78b of economic losses, only $9.4b or around 12% were covered by insurance. This highlights the underinsurance gap in the region.

“Amidst this sobering backdrop, what has been taken for granted all along is now clear: our interconnected and interdependent global system is incredibly fragile and vulnerable,” Tan said.

Losses in 2022 In Aon’s Global Catastrophe Recap, global preliminary loss for the first quarter of 2022 is now at $32b, with public and private insurers covering around $14b.

“The first quarter is typically the quietest of the year, though 2022 marked the sixth consecutive year to record more than $10b in insured losses,” Aon said.

What contributed most to the global loss is fluctuations in temperatures and precipitation influenced by the continued effects of La Niña across the central and eastern Pacific Ocean. These influences resulted in notable hazard events, including prolific and record-setting rainfall along Australia’s East Coast.

APAC logged the highest percentage of first quarter economic losses at more than $15b. Aon predicts that economic loss totals will continue to develop in the weeks and months ahead due to many large-scale and impactful climate events in March.

Demand for resiliency The obvious danger that climate risk brings is that it will result in structural shifts to many firms’ riskreturn profiles.

According to a research released by Swiss Re Institute, it was estimated that if no action on climate change is taken, Asia’s economy would be 26% smaller in 2050 whilst ASEAN’s economy would shrink by 37%.

HONG KONG BUSINESS | Q3 2022

45

OPINION

CARRIE TONG

Hong Kong insurers step up to seize opportunities in Greater Bay Area

D

espite the challenges arising from the ongoing global pandemic, Hong Kong, with its expertise and massive capital flows in the insurance market, will always be the Asian hub for multinational insurers. On top of that, the strong demand for insurance in Hong Kong shows no sign of abating. According to the Insurance Authority, total gross premiums of the Hong Kong insurance industry for 2021 reached HK$602.7b and new office premiums (excluding Retirement Scheme business) of long-term business were HK$166.8b, up 25% from 2020.

Furthermore, with the rapidly developing Greater Bay Area (GBA), where Hong Kong has been positioned as an international risk management centre, the city’s insurance market is set to grow ever stronger. Since the signing of the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the Greater Bay Area in 2017, development within the GBA has accelerated, from building infrastructure to knowledge and talent exchange within cities, contributing to rocketing economic growth.

Yet, insurance penetration and density remain low in the region.

The insurance penetration of nine other GBA cities is 5.5%, only onefourth of Hong Kong (20.8%). In terms of insurance density, insurance premium per capita in Hong Kong amounts to nearly RMB70,000, more than nine times of the nine mainland GBA cities (RMB 7,400). Demand, however, is soaring.

Purchasing insurance products the second reason for GBA residents to visit Hong Kong Manulife research conducted last November to December surveyed nearly 1,600 respondents from nine GBA cities who have visited Hong Kong in the last 36 months and currently own or are interested in purchasing insurance products in Hong Kong in the next two years.

Results from the survey showed that 96% are eager to visit Hong Kong when the border reopens within the first 6 months.

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CARRIE TONG Chief Strategy Officer Hong Kong, Macau and Head of Macau Branch, Manulife (International) Limited

When asked about reasons for visiting, 70% of respondents said they plan to buy insurance products, which was the second reason behind leisure and shopping (84%). In addition, the research found that amongst those who are considering buying insurance, 93% tend to buy insurance in Hong Kong, which is higher than those opting for mainland China (78%), showing the considerable strength of Hong Kong’s insurance products.

Growing intent to buy insurance for spouses and children Results further show that respondents have the desire to purchase not just one insurance product, but close to three on average.

Respondents are most interested in purchasing critical illness and personal accident products, attracting 40% and 33% respectively.

Additionally, respondents are interested in long-term savings insurance, universal life insurance, and investment-linked insurance. Amongst the respondents, 86% who are married plan to buy insurance for spouses, whilst 62% of parents are looking to buy insurance for their children, showing the growing trend of protecting family members.

Pandemic drives investments in personal health People around the globe are now more aware of critical illness and medical products since the outbreak of COVID-19. Not only are they looking for long-term health protection, but they are also seeking comprehensive and flexible insurance products that enable them to withstand the unexpected and unknown.

The mature Hong Kong insurance industry offers a wide range of comprehensive solutions designed for different needs. With the imminent resumption of cross-border travel, the insurance industry must be ready to grasp the opportunity to invest in service enhancements and product upgrades to cater to the increasing protection needs of GBA residents.

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OPINION

TIM FU

SMBs can ramp up business by harnessing the power of innovation

W

hile the relaxing of social-distancing restrictions has undoubtedly eased some of the burdens SMBs are facing, there is another factor contributing to the optimistic outlook – investment in innovation. According to the aforementioned survey, the pandemic has pushed local SMBs to become more creative in their business models. Over half of the surveyed businesses said that they generated more than 10% of revenue through e-commerce in 2021 – the highest figure since 2017.

In other words, transforming the need to stay afloat during the pandemic into drivers of innovation can help SMBs not just survive in the industry but thrive.

Embracing innovation in times of crisis Innovation has become synonymous with the tech industry in recent years but its central ideas are more relevant to SMBs than ever. At its core, the concept of innovation simply means using creativity to improve in three business areas: products and services, business model and customer experience.

The effects of the pandemic will be felt for years to come. Nonetheless, there is no better time for businesses to innovate than in periods of crisis. According to a report by McKinsey, companies that prioritise business innovation in times of crisis outperform their competitors by 30% during the recovery.

Whilst radical shifts in consumer behaviours and market needs are pushing SMBs to the brink, these factors are also key dynamics that allow disruptive products, business models and customer experiences to emerge. For instance, the e-commerce boom spurred by the pandemic has offered an excellent gateway for SMBs to reach new markets and a wider consumer base by adopting digital technologies.

It has also challenged businesses to create new customer experiences as they now need to cater to more diverse needs and preferences from all around the world.

Here are three tips for SMB owners who are looking to transform survival into innovation: 1. Listen to your customers Starting the process of innovation can seem daunting, especially for SMB owners who are already strapped for time and resources. But it’s important to remember that investing huge sums into R&D is not the only way to kickstart the innovation journey.

Not all businesses need to come up with ground-breaking products and services to succeed. To ensure new offerings bring extra value to consumers, SMBs can turn to one resource they all have free access to – customer feedback. According to a survey, 90% of the consumers surveyed said that“listening to customers” is the best way for companies to drive innovation. In addition, paying closer attention to 48

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TIM FU Market Leader, Hong Kong, Korea & Taiwan, PayPal

peers and joining trade networks can help business owners find new sources of inspiration to improve their products and services.

2. Build a digital-first business model Establishing an innovative business model does not require rebuilding your business from scratch. For traditionally brick-andmortar stores, simply expanding sales channel into the digital world can create new revenue streams.

Setting up a social media account and building an online presence is a fast and low-cost way for SMBs to generate sales through e-commerce. In PayPal’s SMB survey, 41% of local SMB respondents said social media was their most important channel for stimulating growth during the pandemic.

Not only can e-commerce generate growth in the domestic market, but it can also help SMBs access overseas markets through cross-border trade. A recent survey in the U.S. found that 39% of SMBs with digital sales channels are confident that their exports will grow in 2022 compared to just 13% of those who only use offline channels. Going global is no longer an option but a driver of growth and a key priority for SMBs. 3. Create customer-centric experiences Building trust with customers is the cornerstone of success for every SMB. When it comes to e-commerce, providing a seamless user experience can go a long way in enhancing brand loyalty and increasing bottom line results. For example: studies show that two-thirds of consumers are willing to pay more for a great user experience when shopping online.

Optimising the payment process is one of the best ways to enhance the user experience. Innovation in this area means making the process more intuitive by reducing the number of steps involved, offering payment options consumers prefer and simply reducing load time. Research found that close to one in five consumers abandoned their shopping cart during checkout because the process was too complicated or taking too long. The good news is that even incremental improvements can lead to significant reduction in cart abandonment and increase conversion. For instance, speed improvement of as little as 0.1 seconds can increase conversion rates by an average of 8% and the order value by an average of 9%.

The past few months have been tough for SMBs in Hong Kong but there is no reason to lose hope. The pandemic provides fertile ground for breakthroughs in the market. Therefore, it’s critical that business owners use this time to explore new ideas and prepare for the future. By paying closer attention to consumers, investing in e-commerce channels and minimising friction in the user experience, SMBs can go beyond short-term survival and start building a solid foundation for long-term growth and success.

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