Editor’s Note: This post is contributed by Hugo Wu, a Hong Kong-based Internet industry analyst, private banker, progressivist, and web economy believer. Feel free to contact him on WeChat (ID: i-quan).
Recently I have been doing research on stories of professionals in Hong Kong making use of the O2O trend to jumpstart service industry internet startup. My rational is, if O2O could help transform traditional service industry into a scalable digitalized one, then there we should see a lot more emerging business models in Hong Kong and Singapore, as these cities have some of the most established professional services such as finance, consulting, and legal services.
To my dismay, however, what I found instead was that many traditional service industries have not even siren from across the Great Firewall of China. Most appears complacent about the old ways as if the disruptive changes brought by internet startups on various industries on the other side of the wall will remain contained ever within. Even for P2P lending, a field that lies on the epicenter of disruptive innovation, there is not much to be found in Hong Kong except a company named Welab. The lukewarm response to new economy business models contrast sharply with the zealous atmosphere in mainland China.
I guess the lack of internet finance startups in Hong Kong has something to do with the deep-rooted professional culture which shuns uncertainties in favor of orthodox. In fact, I myself could not stop wondering whether it is a good idea to enter this arena when the risk of a Chinese debt crisis looms on the horizon. There are always some bold visionary exceptions of course. Take the example Simon Loong, the founder of Welab, a company that launched online lending platform WeLend.hk. Simon would share with me their preparations to venture into the China despite their remarkable growth rate in Hong Kong. I was amused and asked him his reasons for not fearing the worst, as two years of “barbaric growth” have led to an industry mired by default risk. But Simon sees greater market opportunities than risk. He believes that the next few years will see great opportunity for Welab to expand. “The lessons from lending club and Prosper in US have shown that P2P lending would eventually evolve into whole new asset class for investment diversification.” he explained. Overseas experience has proven that P2P lending, as a business model, is an effective way for lowering the cost of personal lending, hence the stronger players will stay despite upheavals ahead.
Professionals in finance all understand the cornerstone of the lending business is a robust risk management system. Perhaps this explains why many online lending companies’ offline risk management team keeps getting bigger and bigger, teams of a hundreds and thousands of staff is commonplace. Simon has exchanged ideas with many domestic peers, he thinks that while offline risk management team is necessary, there is much space for increasing the proportion of work handled by online data analysis. He further pointed out that many domestic peers lack firsthand experience in dealing with a credit down cycle. In fact this is why there are still ample opportunities for outsiders like Welend to explore. Simon draws on his own experience in 2005 during the Taiwan credit card debt crisis. He led Citibank to emerge from the crisis as a victor and overtake rivals on market shares. “The secret lies in the refinancing business which typically accounts for 30% of personal consumer loans in financial institutions; refinancing means lower business acquisition cost, lower risk management cost, which in turns lead to lower long term funding cost. Simon also mentioned that among people who came to him for partnership discussions, many came for his team of professionals.
For the longest of time, Hong Kong IT companies were not able to compete against domestic players as they lacked local market sense. I asked Simon what remedies he has for business localization. He acknowledged that a reliable local partner is indispensable for a successful China strategy. But he also notes that there is plenty of room for professional expertise to play in the coming market consolidation phase. His words reminds me that although Hong Kong entrepreneurs had edge in the China internet arena in the past, that may change in the future for those who finds the right angle to offset their disadvantages through professional expertise, which would be an increasing relevant as O2O cascade down to more service industries.