Customers don't want virtual banks, they want better digital services. Source: Shutterstock

Customers don’t want virtual banks, they want better digital services. Source: Shutterstock

HSBC invests to boost digital capabilities instead of building a virtual bank

CUSTOMERS want the best digital products and services possible, that’s the reality.

In the financial services space, virtual and challenger banks have been the ones delivering on these customer expectations, which is why they’ve been able to successfully pry business out of the hands of traditional banks.

Since traditional banking infrastructure is challenging to modernize, most traditional financial institutions are exploring the option of setting up separate digital-only, virtual banks.

In Hong Kong — Standard Chartered Bank and Bank of China (Hong Kong) — two out of the three traditional, note-issuing banks are in the process of applying for licenses and setting up the legal entities that would be required in order to launch as ‘virtual banks’.

HSBC, the third note-issuing bank, however, votes against the virtual bank. Instead, the financial institution believes that its US$2.2 billion investment in growth and technology initiatives across the globe in the first half of this year will help it deliver on customer’s expectations in Hong Kong and around the world.

“HSBC has invested significantly in its digital banking platforms. There is nothing a virtual bank can do which we cannot offer. We do not believe we must have a virtual bank license to operate digital banking services,” HSBC Hong Kong’s Head of Digital Banking Andrew Eldon told South China Morning Post (SCMP).

Aside from the success that HSBC has delivered time and again with blockchain, some of the other projects that are helping the bank accelerate the delivery of better experiences include the use of robotics and artificial intelligence (AI).

Technology is helping the bank make a decision on loan and credit card applications almost instantaneously instead of taking the regular 22 days in the case of loans and up to six days in the case of credit cards when done using traditional processes.

“AI is an important area for us to invest in. Banking services that adopt AI technology can be quicker and more accurate than through traditional processes,” said HSBC Global Head of Partnership Development and Innovation, Retail Banking and Wealth Management Andrew Connell.

“Digital banking services will allow customers to be able to carry out a wide range of banking transactions with no need to go to branches.”

Globally, HSBC has 1,600 robotic devices that processed 11.5 million transactions last year, a tenfold increase from the 2017 figure reached by the company.

Of course, the investment in technology means that the bank no longer needs to hire replacements for traditional executives leaving the bank — however, headcount in technology teams has grown significantly at HSBC.

Over the past five years, the bank hired 1,000 staff to support the digital initiatives in its offices in Hong Kong and the Asia Pacific.

HSBC’s decision to avoid setting up a virtual bank isn’t surprising to most analysts, especially given their efforts to accelerate the organization’s climb up the digital maturity curve. However, only time will tell if the efforts being made by the bank will pay off in the face of increased competition from digital-native players in the space as well as digital-first ventures launched by competitors.