Q&A: Bain & Company's Henrik Naujoks

Q: How does the GBA opportunity look going into 2021?

A: We saw a lot of development from 2017 to 2020 with the Shenzhen-Hong Kong Stock Connect, the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation, and the Opinions on Financial Support for the Greater Bay Area. People are now realizing that if policy directions go further this way, we will see the Greater Bay Area increasingly coming together as one economic zone with GDP that equals Korea or Canada with growth rates of 8% a year. No one can project exactly when and which regulations will be put in force, but the commitment and direction is clear. So, despite the uncertainties, the opportunity in huge.

Q: What is the significance for financial investors?

A: It’s a big opportunity to grow cross-border business, but you have to be realistic about how fast it will materialize. A lot of industry participants are aware of GBA, but they don’t have a real strategy because there are still too many uncertainties. For investors, there needs to be a deeper dive into potential targets and what can be expected in regulatory changes. Financial investors should look closely GBA, but unlike a corporate bank or insurer, their investment horizons are quite critical, so it will be much more nuanced. There’s definitely opportunity for PE and VC funds, but the starting point so far has been in safer products like fixed deposits and bonds.

Q: What progress have you seen in terms of financial services?

A: Wealth management is further down the road than other categories. The Wealth Management Connect initiative is already allowing GBA residents to carry out cross-boundary investments. In lending, we see greater activity in cross-boundary mortgage loans for individuals. In insurance, we currently don’t see policies that can be sold across borders. There will most likely be a breakthrough in that at some point, but probably not soon. We are starting to see cross-boundary medical coverage, and we will likely see cross-boundary service centers in the near future. But it is unclear what that means for PE and VC funds. They don’t want to place bets on regulation that could come in one year but could also come in seven years.

Q: Strong policy agendas with poor regulatory detail tend to create skepticism…

A: Yes, but GBA is very important for financial institutions because although the pace and exact implications of certain policies is still to be determined, it is not going to go away. Financial institutions have to think through what will be necessary to be successful in this market and how to invest to exploit these opportunities. We’re seeing some financial players building up GBA taskforces and units because neither a mainland-only view nor a Hong Kong-only view will be able to address the differences between the markets. They’re thinking through some no-regret moves that they can make as well as strategic moves to maximize value.

Q: Are there any universally recommended no-regret moves?

A: Marketing campaigns and branding are key triggers, and brand awareness can’t be built up in six months. The higher the customer recognition is, the more you can actually exploit these opportunities. This is a topic for investors if, for example, they have Hong Kong-based companies that will want to use the GBA as an expansion area. Another one is to stay tuned to regulatory actions and participate proactively by any means possible in influencing the policymaking. Stay close to the debates and the regulatory agencies, so you’re not surprised by any of these moves and you can partly shape your own destiny.

Q: To what extent is GBA a fintech opportunity?

A: Fintech might be one of the disruptors here and therefore there is an opportunity, but we shouldn’t forget that Hong Kong is still a very traditional market. A significant part of financial services business – and by far the most in insurance – is not done through digital channels. In mainland GBA, the people have very different digital behavior. The financial services players in Hong Kong will have to step up in order to deliver better experiences in the buy, services, and claims processes, so fintech players will likely benefit over-proportionately. But it will not be a massive shift that only benefits fintechs.

Q: How will GBA’s cultural differences influence fintech?

A: There are a lot of products that are either purely tailored to Hong Kong customers or purely tailored to mainland customers, but there is a lot of cross-boundary interest in products from customers on the other side. If you’re a bank or a fintech, be aware that what flies in Hong Kong does not necessarily fly in mainland China and vice versa. In Hong Kong, you would design your digital experience to mainly direct people to offline channels. When mainland customers purchase products in Hong Kong, they may feel that the digital experience is not as good as what they usually have. You have to adapt your product and services, and if you’re an investor looking at a company, there’s no silver bullet.

Q: Could political issues disrupt the GBA narrative?

A: Politics will have an impact, but I hesitate to predict. I think this goes back to my point about staying close to the regulatory action to see how it evolves over time. That includes uncertainty about population migration, which will have different impacts on organizations depending on whether they have mainland, Hong Kong, and international perspectives. Trade issues will also play a role in GBA, but it’s less of an imminent topic for private retail customers and small to medium-sized enterprises in financial services.

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• Topics
• Greater China
• Financials
• Advisory
• Regulation
• China
• Hong Kong (China)
• Financial Services
• insurance
• Greater Bay Area