The Hong Kong Monetary Authority yesterday awarded the market's first three virtual banking licenses to Livi VB, SC Digital Solutions and ZhongAn Virtual Finance.
The granting of the licenses under the Banking Ordinance has already taken effect, and the three newly licensed virtual banks plan to launch their services within 6-9 months.
Livi LB is a joint venture between BOC Hong Kong Holdings, Jingdong Digits Technology Holding (JD Digits) and the Jardine Matheson Group. The companies have committed an initial joint investment of HK$2.5 billion.
Meanwhile SC Digital Solutions will be 65.1% owned by Standard Chartered Bank Hong Kong, 15% owned by HKT, 10% owned by PCCW and 9.9% owned by Ctrip Finance.
The three companies plan to use the venture to integrate virtual banking into their respective service offerings, and use their established market presence to offer services that are personalized to customers' needs.
Finally, ZhongAn Virtual Finance is 51% owned by ZhongAn Online and 49% by industrial material distributor SinoLink Group.
HKMA is processing the remaining five virtual bank applications. If approved, this would take the number of licensed banks in Hong Kong – including the first three virtual banks – up to 160.
“We are pleased to grant the three virtual banking licences today. The introduction of virtual banks in Hong Kong is a key pillar supporting Hong Kong’s entry into the Smart Banking Era. It is a major milestone in reinforcing Hong Kong’s position as a premier international financial center,” HKMA chief executive Norman Chan said.
“I believe that virtual banks will not only help drive FinTech and innovation, but also bring about brand new customer experiences and further promote financial inclusion in Hong Kong.”
Chan said because virtual banks will have no physical branches, this will require them to rely on the internet for customer acquisition and the delivery of banking services, which will encourage them to offer innovative and customer-centric services 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,” he said.
Fergus Gordon, an Accenture managing director in charge of the company's banking practice in Asia-Pacific said the success of digital-only banks in markets such as the UK indicate that new players could carve out a significant share of the market.
“But that doesn’t mean all is lost for traditional banks here. Virtual banks will need some years to establish themselves, then there will likely be some consolidation among some of the players, and in the meantime, traditional players should continue to rapidly reconfigure their branch networks to become more focused on experiences and use technology to make the transition from digital to physical and back much more seamless,” he said.
“Understanding the different customer segments and how to best utilize technology to provide them hyper-personal services and products will be key for a successful banking strategy in Hong Kong. Given the level of satisfaction among consumers, there’s huge opportunity for banks here to improve.”