Hong Kong financial institutions are exploring and rolling out of new models and technologies, including banking-as-a-service (BaaS), embedded finance and generative artificial intelligence (AI) at an accelerating rate, according to a recent report.

In  the area of generative AI, Hong Kong finance executives are moving faster than other major markets in the adoption of generative AI, with 38% saying their organization has already started rolling out the technology, finds fintech group Finastra’s annual Financial Services: State of the Nation Survey 2023.

This is the highest percentage of all the markets surveyed and well above the global average (26%), as well as being more than double that of Singapore (16%), which appears to be taking a more cautious approach. In fact, just 1% in Hong Kong executives surveyed say their financial institution is not interested in the technology at all.

Bullish on BaaS, embedded finance

Hong Kong decision makers are the most enthusiastic globally about the potential for BaaS and embedded finance, the research finds, with 95% (vs global average of 84%) seeing the emerging banking models as generators of business growth and revenue.

This represents a significant increase since last year’s survey (79%), which is mirrored by large increases in organizations deploying or improving their BaaS capabilities (51% in 2023, up from 33% in 2022), or their embedded finance capabilities (43% in 2023, up from 27% in 2022) in the last 12 months.

Stability amid challenging climate

The challenging economic climate has affected banks’ investment plans globally, with significant proportions in every market, the research points out, saying their financial institution’s investments in technology and digital banking have been constrained to some extent (ranging from 64% in Saudi Arabia to 87% in Vietnam and the UAE).

However, Hong Kong has the highest proportion of financial institutions, Finastra notes, that have not been constrained at all (30%) behind Saudi Arabia (34%). Of those whose organizations have been constrained, 70% have either resumed their tech investments in full or expect to have done so by the end of H1 2024.

Growth potential in green lending

There is a strong perception that environmental, social and governance (ESG)-focused finance can benefit both financial institutions and communities, with 87% in Hong Kong agreeing that a focus on ESG and sustainability will be the next big disruptor in the sector.

Specifically, 90% – the highest globally – agree that ‘green lending’ provides an opportunity for growth and revenue generation. One of the keys to unlocking this potential might be generative AI. Of those interested in the technology, the most popular use (current or planned) globally is the collection, processing and analysis of data for ESG decision-making or criteria classifications (36%), with 35% in Hong Kong planning to use it in this way.

Simon Paris, Finastra’s CEO, adds: “Despite the challenging economic climate, it’s clear from our research that investment in AI, BaaS and embedded finance remain key priorities for financial services organizations over the next 12 months, particularly as they seek to further enhance and personalize the customer experience.”