case study: setting up a fintech business in hk
TRANSCRIPT
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Case Study: Setting up a Fintech
Business in HK
Rajah Chaudhry | Founder & CEO | Paycelerate
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Building a fintech business in Hong Kong
Choosing the right business
Hiring the right team
Setting up in HKUsing HK as a springboard
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Choosing the right business
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Enterprise Buyers Smaller SuppliersMarketplace
Offer discounts for early payment of invoices
Optimized outcomesPay discounted invoices early using balance sheet
Paycelerate - Dynamic discounting marketplace
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There’s a lot going on in Fintech
P2PBlockchain
Big Data
Artificial Intelligence
Payment Gateways
BaaS
Open APIs
Ethereum
ICO
Insurtech
Smart Contracts
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Thinking about a fintech business model from first principles
Painpoint
Potential Opportunity
Existing options
Better solution
Identifiable inefficiencies having a large impact
Large amount of value at stake
Little improvement in last 5 – 10 years
Significant improvement to justify process changes and expense
Proof of Concept A target customer segment to test and prove the concept
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Low yields on short-term deposits
High cost of short-term funds
Enterprise Buyers Smaller Suppliers
Commercial Banks
Long Payment Terms
Painpoint
Lack of meaningful short-term funding and investment options
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Existing Options
Banks unable to provide yield on short-term funds to buyers
Legal
$Headcount
$
Store Network
$
Risk Assessment
$
Legacy Systems
$
Regulations
$
Commercial BanksEnterprises
Funds
Yield
Low Interest Rate
Environment
%
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Existing Options
Solutions for suppliers are unable to adequately serve needs
Factoring Supply Chain Finance
High CaC
High cost of funding
High churn
Low supplier coverage
No financial benefits for Buyer
KYC/AML overhead
Poor Economics Poor User Outcomes
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Better Solution
Spreads are eliminated generating better outcomes
20 – 35%+
6.0%
Factoring
0% 40%
0.3%
6.0%
Treasury Bill Paycelerate
Paycelerate
Cost of Funds for Supplier Yield for Buyer
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Yield on cash at the bank = 0.5%
Short-term funding cost = 15%
Approved Invoice45 days
Better Solution
Approved invoices offer an effective but overlooked mechanism
Buyer
Supplier
Pending15 days
Potential Cashflow Issues60 days
Example 60-day invoice and short-term financing cycle
Invoice Sent Payment Received
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USD 6tn in cashheld by Top-2000 corporates in
APAC and growing
<0.5% intereston short-term capital earned by
corporates in HK
70%+ of suppliersin a typical corporate supply
chain are sub-investment grade
Potential Opportunity
Record Corporate cash generating low yields, SMEs underserved
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Ideal Economics
Access & Location
Clear Use Case
Decision Makers
APAC Corporates with Global Supply Chains
Hong Kong Singapore
Retail Manufacturing
Treasury Supply Chain
All enterprises worldwide
4. Function
3. Sector
1. Type
2. Geography
Proof-of-concept
Focus on customer segment with strong economics and use cases
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Hiring the right team
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Building a team with your client needs in mind
• Solve a core business need
• Better than existing options
• Track record of the provider
• Benefit > cost/effort
• Security (system and data)
• Trust factor
Client Checklist
✓
✓
✓
✓
✓
✓
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General points on hiring at a young company
Find the right fit
• People need to match client expectations
• Company culture very important early on
Always be hiring
• Do your own hiring, avoid recruiters early on
• Build good reputation as an employer
Be patient
• Outsourcing is tempting but not sustainable
• Local talent exists in HK, but risk averse
Pragmatic approach
• You get what you pay for – pay market rates
• Get referrals and do background checks
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Setting up in HK
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Advantages to setting up a fintech business in Hong Kong
Open Economy
LocationWorld class businesses
Talent
Densely populated hub with many of the biggest companies in
the world
Centre of AsiaDoorstep of China
Easy access to South and East Asia
World’s freest economy 23 years running and strong
rule of law
Regional finance expertise and world class university pool
✓ ✓ ✓ ✓
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…but there are challenges as well
FundraisingCosts Admin Regulation
Easy to set up company but not easy to open bank account
and get support
Limited options but you can always find
funding if you have a good business
HK trying with various initiatives but still
catching up
Rent and labor is a major consideration if
setting up in HK
✗ ✗ ✗ ✗
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Using HK as a springboard
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Billions of people <5 hours away Well suited to testing the waters
Concentration of consumers/ businesses - well suited to rapid PoCs
Explore APAC effectively without committing significant resources
HK offers an ideal springboard for testing and expansion
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• Grow revenue base with limited additional investment required
• Leverage network effects from established trading relationships
• Target global supply chains from small number of major business hubs
Our Rationale
• Expand dataset and create additional trade finance products
Building a network from HK based on APAC business hubs