Hong Kong's virtual banks aim to put the city back on top

Livi VB, SC Digital Solutions and ZhongAn Virtual Finance are the first three applicants to win a virtual bank licence in Hong Kong. And they are using fintech to control the risk.

Hong Kong's first batch of virtual banks will use fintech such as blockchain, artificial intelligence and big data to keep customers' money safe and to provide a better service. 

In what is a huge step, Hong Kong issued three virtual banking licences to three joint ventures last week. 

Among the first batch is Livi VB, which is owned by Bank of China (Hong Kong), JD Digits and Jardines. It has said that it intends to use blockchain, artificial intelligence, big data, and smart risk modelling to help customers achieve their investment returns. Livi will mostly focus on a simple and secure ecosystem for SMEs in Hong Kong.

Livi also said it will focus on Hong Kong residents initially, instead of providing the service to customers in the Guangdong-Hong Kong-Macau Greater Bay Area.

SC Digital Solutions, another of the new licence holders, aims to promote retail banking services in Hong Kong. 

The licence is good news for online travel agency Ctrip. Its finance arm holds a 10% stake in joint venture SC Digital Solutions, together with Standard Chartered and PCCW. Without a virtual banking licence on the Chinese mainland, the Hong Kong licence will help Ctrip to develop its own services too. Ctrip's finance arm has expanded its team since October last year, hiring talent to build a customer instalment loan system. 

“It will benefit Ctrip clients with a more convenient and comprehensive travel service,” said Feng Yan, chief executive of Ctrip Finance.

And Zhong An Virtual Finance is the third new licence holder. It is a joint venture between ZhongAn Online and Sinolink and intends to offer a wide range of online financial services to Hong Kong users.

The Hong Kong Monetary Authority (HKMA) is still processing the remaining five applications.

At least one applicant who was turned down by HKMA said that they would try filing again in the next 12 to 18 months when the central bank opens up applications for the second batch of licences. In the meantime, they are looking for opportunities to partner with those who already have licences.

Livi, SC Digital Solutions and Zhong An Virtual Finance haven't ruled out the possibility of partnering with other financial-service providers.

PRIVACY VS CONVENIENCE

Banking services in Hong Kong, especially online and mobile banking services, still need to improve. About 35% of Hong Kong users are not satisfied when they use online banking services, and 56% of Hong Kong users also face problems while using mobile banking services, according to a survey by consulting firm JD Power.

Some would even trade personal data for efficiency and convenience. This gives a lot of space for virtual banks to fill the gap. About 81% of Hong Kong consumers would be willing to share income, location and lifestyle data for rapid loan approval, according to a survey by consulting firm Accenture.

“Understanding the different customer segments and how best to utilise technology to provide 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 a huge opportunity for banks here to improve,” said Fergus Gorden, managing director at Accenture and who leads banking practice in APAC and Africa.

“As virtual banks have no physical branches, they will rely on the internet for customer acquisition and to deliver banking services. Moreover, in targeting the retail public and SMEs as their main client base, virtual banks should help promote financial inclusion in Hong Kong,” said Norman Chan, chief executive of HKMA.

Virtual bank licences are an essential way for Hong Kong to become a premier international financial centre again. The city is lagging on mobile payments and online banking, and virtual banks are the way to improve user experiences with AI, blockchain and other disruptive technologies.

 
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