Bankers bid for Hong Kong’s online licences
AT LEAST a dozen banks, fintechs and telecom firms are lining up to get a piece of Hong Kong’s retail and small business banking market as the regulator prepares to award the former British colony’s first online-only banking licences.
Bidders hoping to challenge the dominance of HSBC and its local rivals, Bank of China (Hong Kong) and Standard Chartered, include China’s Ant Financial, Tencent, and Ping An Insurance, several people familiar with the process said.
StanChart said yesterday that it had set up a new entity for digital banking and had submitted an application for a licence. Hong Kong-based fintech company WeLab Holdings also said it had applied.
Hong Kong telecoms operator HKT Trust and HKT, and fintech company TNG Wallet have also said they would apply.
The deadline for the first batch of applications is today, and others expected to apply include Bank of China (Hong Kong), Chinese smartphone maker Xiaomi and online insurer ZhongAn, said the people and local media reports.
On offer is access to a rich banking market where many consumers are unhappy with their current options, according to research last year from Accenture. The research showed that only 53 percent of consumers in Hong Kong are satisfied with their banks, compared to 88 percent in the US, and 72 percent in Australia.
Small firms, who have long complained about the difficulties of opening bank accounts in Hong Kong, will be one target of the new online lenders, with small loans, foreign exchange and payment services among those on offer, the people said.
The potential prize is enormous. HSBC alone made profits of $1.4 billion (R20.4bn) from its Hong Kong retail banking and wealth management operations in the second quarter, accounting for 80 percent of its global retail banking revenue.
HSBC is not expected to apply for a separate digital banking licence in Hong Kong, as the bank is focusing on bolstering its core services using digital technology, two of the people said.
In contrast, StanChart has decided that a separate digital banking platform will help it break away from its global and legacy technology systems and allow it to work with start-ups to tap new clients, they said.
The established banks’ entrenched position in Hong Kong is a major challenge for the new licensees, whose road to profitability could be long as they work to build out their product offerings and cope with high compliance costs.
“There is a large majority of customers in major markets who are willing to do banking with different models, and digital banks have a great opportunity to tap into that,” said Fergus Gordon, who leads Accenture’s Asia-Pacific banking practice.
“The challenge for the new entrants, however, will be to build up a meaningful customer base quickly and generate return on investments over the next two to three years. It’s easy to go off the risk-reward yield curve in this push.”
While a virtual bank, as the digital lenders are to be called, must have a capital base of HK$300 million, it will need to make large investments in customer background and anti-money laundering checks, as well as cybersecurity, Gordon said.
The new applicants will also have to get used to a different scale of regulation.
“For tech companies, being within the HKMA’s reach and having to think about capital and liquidity requirements is something with which they’ll need to get comfortable,” said Hannah Cassidy, a partner at law firm Herbert Smith Freehills, referring to the Hong Kong Monetary Authority.
The HKMA says it has received expressions of interest from more than 70 companies, some of which have put in applications. It did not mention any names.
The regulator hopes to start giving licences towards the end of this year or the first quarter of next year. – Reuters