Data Storage and Moneylending Get Connected17 July, 2015
The rapid emergence of the fintech sector is giving entrepreneurs extensive scope to innovate and explore. Against a backdrop of evolving technologies and shifting consumer expectations, the way is open for them to create businesses which offer new operating paradigms or resolve challenges thrown up by the digital revolution.
In some cases, the emphasis is on the financial side, perhaps finding new ways to bring borrowers and lenders together. In others, it is on making the tech aspects more user-friendly or secure. Either way, though, there is clearly a whole new area of opportunity which will continue to attract some of Hong Kong’s brightest minds.
“What concerned us was that some of the most prominent, successful companies had been lulling users into putting their personal information into the ‘cloud’ and then finding ways to monetise that data,” says one such entrepreneur, Jack Poon, CEO of AtCipher.com. “We felt that was wrong and that there ought to be a better way for users to enjoy cloud services without compromising their private and personal information.”
Set up less than two years ago, the company aimed to solve this problem, looking at things from the customer, not the corporate, viewpoint. With this went the realisation that data breaches of one kind or another were increasing every year, and the various threats were becoming more targeted and ever more sophisticated.
“While most cyber security companies offer solutions which provide ‘perimeter defence’, we felt strongly that protection should be extended to the data itself,” Poon says.
He explains that data encryption is known to be effective. In principle, it could take billions of years to crack a 128-bit code, even with the most advanced supercomputer. However, for most companies, there is a trade-off between security and usability. They know that when data is encrypted, it is more difficult for users to access and share, so they tend to avoid this approach.
For AtCipher.com, the key was to invent several technologies, for which patents are pending, which allow users to benefit from services in the cloud while maintaining their data privacy. This makes it possible to encrypt company and client data over existing infrastructure without an adverse impact on productivity or usability.
“Our first year was spent developing the cryptographic framework and validating our proprietary technology to ensure that the algorithms and system can indeed solve the problem,” Poon says. “Right now, the focus is on building a viable product and achieving an optimal product-market fit through further discussions with some alpha users.”
Since major financial institutions indicated that it may prove difficult to ratify the new technology for their highly regulated industry, sales efforts are currently directed at the B2C and B2B sectors.
For the former, the plan is to offer AtCipher Drive, a product providing client-side encryption before sending data to public cloud storage. Users will be able to share encrypted data securely without having to learn new tools or change their usage “behaviour”.
For the latter, there will be added functionalities relevant to the corporate IT environment, such as integration with private cloud storage and an audit trail.
“We are still in the early stages, but the initial feedback indicates a growing demand for better data protection,” Poon says. “For the B2C segment, we plan to present our solution at various data security conferences to allow public review of the product and will launch a crowd funding campaign to obtain broader market validation,”
The company is also applying to technology accelerators in the United States and Europe which focus on enterprise solutions. Most have a broad network of supporters and mentors and could help with introductions to potential customers and investment decision-makers.
“Today, Hong Kong’s fintech ecosystem is in its infancy, but I think disruptive innovation driven by entrepreneurs will play an increasingly important role,” Poon says. “However, we need to find ways to activate a mentor community by leveraging the experience of retired professionals and industrialists and senior executives from the financial services industry. Such action would also help to attract more innovators and businesses to Hong Kong’s fintech market.”
For Mukesh Bubna, founder and CEO of Monexo Innovations, there is a similar balance to strike between steering a fledgling enterprise and considering larger-scale factors likely to shape the development of the fintech sector.
His start-up is now almost a year old and, over the last two months, the focus has been “on-boarding” new customers. Essentially, the business concept is to create an online marketplace to match borrowers and lenders outside the more traditional banking system.
Typically, the lenders are people with at least HK$100,000 in liquid assets who are looking for steady returns better than the current deposit rates and without exposure to unwanted currency risk. Borrowers might be property owners receiving regular rental income from tenants – which provides the necessary cash flow and security – but who want a lump sum now. This could be to invest in other properties, something they prefer to do without having to negotiate a second bank mortgage at less than favourable terms.
Loan requests are listed on the platform. This is done anonymously but with a clear description of all relevant terms and conditions. Prospective lenders can then propose to cover some, or all, of the requested loan at a specified rate of return. Bona fides, such as proof of ownership of an existing property and current rental income are provided and verified as necessary.
“We are doing a lot of customer education to build awareness but, so far, the product has been well received,” Bubna says. “The platform, in terms of the technology, bank-end systems and building out the algorithms is ready, and the partnerships are in place for insurance coverage and to help us expand the client base. To date, dealing with the regulatory and legal aspects has probably been the most time-consuming part of the process, but we regard that as a good sign for ourselves and for customers.”
As a general guideline, Monexo advises lenders to spread and diversify their loans, not commit everything to just one borrower. The company monitors borrower performance on repayments and will call and send reminder letters if things fall behind.
“Lenders can reasonably expect returns of between 6 and 12 per cent per annum depending on the type of borrower they choose,” Bubna says. “There is enough liquidity in the platform, so people can lend immediately, but we don’t recommend anything. Each lender chooses the profile of borrower he or she wants to work with.”
Everything is done electronically, with identities protected. Monexo’s generates its income from fees which borrowers pay up front and lenders pay every month. Charges only apply to successful transactions.
“The regulators say this is a new industry, but it is really banking 2.0 and we are adding something to the value chain,” Bubna says. “We have studied the regulatory environment in Britain, the United States and China, and adopted best practices and the principles of common law. People know that, in any financial dealings, there is an element of risk, but with an insurance package and by screening borrowers, we help to minimise that.”
Planning ahead, the intention is to add to the platform. This may include “social” loans, bearing in mind that members of Hong Kong’s Filipino and Indonesian communities sometimes pay moneylenders up to 60 per cent, even when the money is needed to help victims of natural disasters.
“As a business, you may want to become big quickly, but we are cognisant that it is important for us to walk before we run, so slow and steady is what we are looking for,” Bubna says.
Author: John Cremer – SCMP