Is it time incumbents started quaking? Source: Shutterstock

Will traditional players be rattled by HK’s first digital bank?

HONG KONG is struggling — the recent civil unrest coupled, along with the coronavirus outbreak, have taken a toll on the economy.

Given the circumstances, some experts believe that the offer made by the country’s first digital-only ZA Bank to pay interest rates of 6.8 percent per annum to a select few customers is justifiable.

“This is a reasonable deposit rate level for new funds as we’ve run the numbers. Our aim isn’t to start the business with disruptive pricing,” ZA Bank CEO Rockson Hsu told local media.

Others see the one-time introductory offer as an indication of challenges to come in the future, especially as digital banks in the wider Southeast Asian market start acquiring licenses and setting up operations.

New age players like ZA Bank have many advantages. They’re resource-light; being born in the digital age makes them nimble; and most importantly, their customers transact online so they don’t have to start and run any branches.

“Our clients’ mobile phone acts like a branch,” Hsu said, brushing off fears that the coronavirus-driven city-wide shutdown will impact the new digital bank’s launch. His belief doesn’t seem unfounded as the organization claims it’s inaugural offer attracted almost 20,000 people.

Traditional banks, on the other hand, have been struggling for a while now, and a price war — even if only among digital players — can be devastating.

Irrespective of size, banks that have been around for a decade or more have plenty of legacy infrastructure that needs upgrades before customers’ needs and wants, and perhaps even their expectations can be met.

That’s a lot of overhead but, in the organization’s overall digital transformation journey, it is only a small part of the cost. Other expenses include acquisition of new technology solutions, customization and implementation costs, training costs for staff across the enterprise to enable them to use the new-age systems, upskilling costs, and so on.

Pressures on the margins of banks have been increasing for years, and a price war when it comes to interest rates is something that will definitely deliver a deathly blow.

Realistically speaking, some of the larger banks — the giants with deep pockets and an ambitious plan to stay relevant in the future — such as HSBC and Standard Chartered — and some of the digital-pioneers and proactive regional leaders such as DBS and CIMB will survive the arrival of digital banks and any war they wage amongst themselves. The others, however, will have to re-think their future, now.