Virtual Banking is developing in Hong Kong under COVID-19

At a time when much of the national economy is struggling. Many company have essentially shut down but current economic environment does offer some bright spots. One is the rise of virtual banking development in Hong Kong.

Virtual banks, also called neobanks, primarily deliver retail banking services through the internet or other electronic channels instead of physical branches.

“The Hong Kong Monetary Authority granted eight virtual banking licenses in 2019, and most only began operations in recent months as a result of launch delays. This is unsurprising as we believe that new entrants are likely to exercise more prudence under a worsening economic outlook from the coronavirus and trade tensions,” states Fitch Ratings.

ZA Bank announced in 24th March 2020 that they are a fully operational virtual bank thus becoming the first virtual bank to fully Launch in Hong Kong. As of today, 8 virtual banks exist in Hong Kong after having been approved by the Hong Kong Monetary Authority but not all of them are already operational.

The 8 virtual banks are:

In fact, virtual banking competition in Hong Kong is off to a slow start as possible growth prospects are being hindered by economic uncertainties, according to a recent commentary from Fitch Ratings.

Virtual banks have sought to attract new customers by pitching their seamless onboarding process and higher savings interest rates. ZA Bank, Hong Kong’s first virtual bank, is offering a 1% interest rate for all customers, while Fusion Bank had offered a 5% rate for a three-month deposit until end-October 2020.

While better customer experience and higher saving interest rates are attractive qualities for any virtual bank, the key test for the eight virtual banking institutions in Hong Kong is how they can create stickiness for their customers to use other kinds of banking services beyond deposit-taking, e.g., lending and wealth management. Already, the likes of ZA Bank and PAOB are offering lending services to their customers, with PAOB promoting a pre-approved loan offer of up to HK$2 million.

Nevertheless, virtual banks will take time to develop, but they are already heating up the market, creating competition for the existing financial institutions. They are a significant part of the Smart Banking Initiatives established with the aim to improve customer experience and facilitate financial evolution.

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