Although virtual banks acquired their licenses this year and have made aggressive progress, traditional banks still believe that human contact will still play an important role in banking services.
Hong Kong-based virtual banking WeLab completed a $154 million round of Series C funding on Friday, which is the largest amount of money raised in fintech this year.
Virtual banks are gathering capital so that they can push ahead with operations in 2020. In its press release, WeLab stated clearly that proceeds would be used to support banking services next year.
Others virtual banks are loading up on cash too. OneConnect, one of the eight companies to have a virtual bank license in Hong Kong, raised $312 million in its New York Stock Exchange IPO on Friday.
Fierce competition is expected between traditional and virtual banks, but traditional banks appear fairly relaxed about the situation. “We do not believe we must have a virtual bank license to operate digital banking services,” said Andrew Eldon, head of digital banking for HSBC Hong Kong in a telephone interview in November. As the biggest bank in Hong Kong, HSBC said that over 90% of its retail banking transactions are already via digital channels.
Traditional banks are also increasing the pressure on virtual banks by investing heavily in fintech. HSBC has said that it allocated $200 million alone to fintech and enterprise startups globally. It also invested $2.2 billion in the first half of the year in its retail and wealth management businesses both to grow them and to develop their digital capabilities.
No wonder that virtual banks feel threatened.
They are expanding their businesses overseas in an attempt to become more sustainable. WeLab has said that it will expand its corporate services onto the Chinese mainland next year, and intends to reach out to more countries in Southeast Asia. OneConnect is already open for business in Indonesia and Singapore and is making a push into Japan.
A further difficulty is that virtual banks are hindered by an inability to get into more profitable banking businesses. “Virtual banks are likely to focus on solving a narrow range of customer needs,” said Andrew Connell, global head of partnership development and innovation at HSBC. “For higher-margin products and services such as wealth and insurance, virtual banks will need separate licenses.”
Human touch is where traditional banks feel their advantage lies. “People need to be able to talk to a human during the most important moments of their lives – be that buying a home or during times of financial difficulty, and this is unlikely to change in the near future,” Connell said.
Technology is likely to open new options to customers and it is true that sometimes people want more control of their own data. But no matter whether they are a traditional or a virtual bank, the key challenge is still finding the right balance between tech evolution and risk management.
We haven't yet had a clear answer about that from any player in the market.