Since January this year, the Hong Kong Monetary Authority has issued 8 new virtual banking licenses, with the latest batch released last week.
As such, the concept of “virtual banks” is gradually gaining popularity in Hong Kong. However, amongst SMEs, it’s still not fully understood what it could mean to banking for businesses. According to a recent “Standard Chartered Hong Kong SME Leading Business Index” survey that covered 811 local SMEs in Q3-2018, the study shows that only 46% of surveyed SMEs have heard about “Virtual Bank”, and more importantly 23% are reluctant to adopt virtual banking services. Even for those interested in using the service, “Cybersecurity” (77%) and “System stability” (61%) are the key factors in service selection.
Because of these numbers and the changes in virtual banking landscape, let’s look at exactly
1) what is a virtual bank?
2) who are these 8 new licensed players?
3) what does this mean for SMEs like you, instead of just traditional individual customers
What is a Virtual Bank?
A virtual bank is a financial institution that can operate savings and loans businesses purely via the internet, without physical branches.
The Hong Kong virtual banks will be purely digital banks. Our requirement is that they need to offer all bank transactions through digital methods,” said Arthur Yuen, the HKMA’s deputy chief executive.
The goal is to increase competition with local banks and catch up with other jurisdictions in disrupting traditional banking like China, Singapore, UK and Australia.
This means many non-banking companies can also operate a virtual bank, as the virtual banks do not need to open branches and can use technology to operate. In addition they will be better placed to offer service to smaller customers (like SMEs) that traditional banks overlook.
They do however still have similar financial resources as traditional banks. In fact, on average, each of the new virtual bank has HK$1.9 billion (US$242.07 million) in capital, higher than the minimum requirement of HK$300 million.
Who are the new banks and does it matter for SMEs?
As mentioned before, there are now 8 licensed virtual banks, and none of them have launched any services yet, so nothing is definitive. But we will briefly discuss who they are, what’s special about them and how it will affect you as an SME?
1. Insight Fintech
Who: Insight Fintech is a JV between Xiaomi and AMTD Group, where Xiaomi own 90% of the joint company.
What’s special: Xiaomi is commonly known as a smartphone brand, but it also has made stakes into fintech. Their goal is to create unique virtual banking services, capitalising on Xiaomi’s relatively strong positioning into all kinds of digitally-connected consumer electronics.
SME focus: Given that Xiaomi is a dominant player in consumer electronics and internet-of-things accessories, it’s likely that their financial products will find synergies with their main business; things like digital wallets and micro personal loans. So unlikely to have particular SME angle.
Who: Infinium is a joint venture between Tencent, ICBC, Hong Kong Exchanges and Clearing, Hillhouse Capital, and Adrian Cheng.
What’s special: Tencent has been operating WeChat Pay in Hong Kong. ICBC has a large retail banking operations and HKEX will have experience with financial trading markets. This consortium will be a very full-suite digital bank with no particular specialization.
SME focus: This consortium has a wide scope of experience in its partners, so it’s likely this bank will serve all types of customers including SMEs. We’d consider this similar to an HSBC of the virtual banks. Infinium will also not require any minimum account balance, or low-balance fees for both the public and SMEs.
Who: Livi a joint venture between Bank of China, JD, and Jardines.
What’s special: Similar to Infinium, Livi has a traditional bank (BOC) to bring the banking operations knowledge, a tech partner to digitize them (JD). But what’s interesting is Jardines; one of Asia’s largest conglomerates, with a varied portfolio containing 7-11, Hongkong Land, Mannings, and many others. Because of this, I believe that Livi virtual bank would focus on lifestyle offerings like clothing, food, accommodations, and other forms of shopping and leisure.
SME focus: As mentioned above, it’s more likely this bank will focus on retail consumers for their specialization on lifestyle. It’s possible that retail, F&B SMEs may also be part of their ecosystem.
4. SC Digital
Who: Standard Chartered with Hong Kong Telecom and Ctrip, a Chinese travel services provider.
What’s special: SC Digital will be standalone and a separate entity from SC (or so it is rumoured). Together with HKT and Ctrip the bank will also integrate telecom-related offerings such as HKT payments services as well as travel rewards. This ecosystem approach is similar to Livi.
SME focus: Unlikely, as they will go after the unbanked and retail customers with lifestyle offerings.
5. PingAn One Connect
Who: Ping An One Connect is a unit of Mainland China’s insurance giant PingAn Group.
What’s special: OneConnect in particular is a fintech SaaS provider of solutions geared towards SME financial institutions. The solutions are based on technologies like artificial intelligence, blockchain, cloud platforms and biometrics identification—which will likely be incorporated into the upcoming virtual banking offering. These solutions already exist in places like Singapore and Indonesia, so we have a good idea of what they’re trying to replicate here.
SME focus: Very much so. If there’s any indication from their other operations, One Connect will be tailored to SMEs and help them adopt new technologies in account sign-up and access to banking services.
Who: The one virtual bank that is truly a Hong Kong company. Welab runs WeLend in Hong Kong, Wolaidai in China and Maucash in Indonesia.
What’s special: Personal loans has been their core business for the past 6 years, so it’s unlikely they’ll change.
SME focus: Based on WeLab’s focus on consumers for their lending product, we don’t anticipate a SME focus initially.
7. Zhong An Virtual Finance
Who: The virtual banking subsidiary of Zhong An Insurance.
What’s special: Zhong An operates an online only insurance platform in the mainland, it’s possible that they’ll bring that here. Their products are likely to focus more on insurtech. More importantly, the group here ZA virtual bank seems to operate quite independently from the larger group, and may be better suited for local Hong Kong.
SME focus: possibly, with a leaning towards insurance products.
8. Ant SME
Who: Part of the Alibaba group’s financial arm; Ant Financial.
What’s special: As the name suggests there will be tailored SME products from this bank. Ant Financial in the mainland does all kinds of lending and credit products. Also the connection to AliPay HK will be interesting. Could be offering full suite of merchant solutions for consumer facing SMEs.
SME focus: Based on the name alone; very much yes. Credit solutions specific for SMEs is expected, as well as payment solutions if AliPay gets involved.