Virtual banks to finally make a debut in Hong Kong says HKMA

BANKS know that owning and operating a branch is expensive, not just because of the staff it needs to run it but also because of the real estate investment it entails. It’s why half of the APAC has already transitioned to virtual banks.

According to one expert, the average branch costs about US$2 million to start and up to US$400,000 per annum to operate.

For decades, boosting the branch-network has helped banks grow their customer base by being more local to a global customer base.

However, in the digital age, customers young and old don’t need a network of branches to support them; they need the institution to establish a strong desktop and mobile presence to help transact on-the-go.

This is especially true for the residents in Hong Kong, Singapore, Australia, and Malaysia.

Customers, through various surveys and polls, have made it clear that they want their banks to be more digital.

In fact, given that technology makes it possible to open a bank account remotely and satisfy know your client (KYC) requirements online, many customers hope they never visit a physical branch in the future.

HKMA granted three virtual banking licenses

The Hong Kong Monetary Authority (HKMA) has just announced that it has granted (virtual) banking licenses to Livi VB Limited, SC Digital Solutions Limited, and ZhongAn Virtual Finance Limited.

“We are pleased to grant the three virtual banking licenses today. The introduction of virtual banks in Hong Kong is a key pillar supporting Hong Kong’s entry into the Smart Banking Era,” said HKMA Chief Executive Norman Chan.

It is a major milestone in reinforcing Hong Kong’s position as a premier international financial center, especially given the fact that Singapore — Hong Kong’s biggest competitor — has been championing virtual banks for quite a while now.

It is expected that virtual banks will not only help drive FinTech and innovation in Hong Kong, but also bring about brand new customer experiences and further promote financial inclusion in the country.

“As virtual banks will have no physical branches, they will rely on the internet for customer acquisition and for the delivery of banking services.

“I believe that virtual banks will have to offer innovative and customer-centric services in order to attract customers. Moreover, in targeting the retail public and SMEs as their main client base, virtual banks should help promote financial inclusion in Hong Kong,” explained Chan.

Will virtual banks will lead the way?

According to the HKMA, the three newly licensed virtual banks will launch their services within the next 6 to 9 months. The HKMA also mentioned that it is still evaluating another 5 virtual bank applications.

The rise of virtual banks in Hong Kong and across the APAC is quite interesting given the demand from customers.

Further, an Accenture study recently showed that customers’ expectations from their bank have shifted and that they’re willing to part with personal data in order to help their banks provide a more tailored offering — one that knows who they are, where they’re shopping, and can use these facts to provide discounts and offers via digital platforms.

“Nearly half of consumers in Hong Kong would be willing to share significant personal information, such as location data and lifestyle information, with their bank and insurer in exchange for lower pricing on products and services,” found the study.

“The UK market, where neo-banks and digital-only challengers have been around for a while, shows there’s a big chance new players will grab a significant chunk of new financial services revenue in the near future in Hong Kong,” said Accenture APAC and Africa MD Fergus Gordon.

The growth opportunity, however, will be reserved for virtual banks that not only provide a robust transactional service to customers but use their platform in new and interesting ways to better integrate themselves into the lives of their users.

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