Competition between traditional lenders and a new breed of branchless banks is heating up in Hong Kong as four new players join an overcrowded market in just two weeks.
Ping An OneConnect Bank completed its three-month trial run and started operations on Tuesday, following Ant Bank (Hong Kong) on Monday and Mox Bank on September 22. Seven virtual banks have started operations this year. Tencent-backed Fusion Bank had a soft launch on Wednesday for 1,000 customers, a step closer to a fully-fledged launch.
Hong Kong last year approved eight virtual banks to spur financial innovation and competition in the industry. These lenders only offer online banking services. They are competing with 155 traditional lenders to serve a city of 7.5 million people.
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Competition between traditional banks and the new crop of virtual banks will be “very busy and very bloody”, said Sebastian Paredes, CEO of DBS Bank (Hong Kong).
The eight new players are offering high-interest rates, spending awards and other gimmicks to customers, forcing HSBC, the city’s biggest bricks-and-mortar lender, to cut 26 of its fees from November. Citibank is teaming up with partners to bolster its offering, such as financial data provider AAStocks.com on stock trading.
ZA Bank, the first virtual bank to launch in Hong Kong, has attracted more than 180,000 customers in its first six months, according to CEO Rockson Hsu, speaking at the annual conference of the Hong Kong Institute of Bankers (HKIB) earlier this week.
“Even at this early stage, it‘s clear that the virtual banks are fostering real competition. This is perhaps most evident from the response of the existing players – from eliminating customer fees to accelerating digital partnerships,” said James Lloyd, a partner at advisory firm EY.
Standard Chartered-backed Mox Bank has signed up more than 14,000 customers during its trial run. Mox‘s CEO Deniz Guven described its debut last week as “super promising,” with the bank attracting a new customer every 60 seconds.
DBS‘s focus is not to try to compete for mass retail digital banking customers, but instead focus on other client segments where it has an advantage, said Paredes speaking at the HKIB conference.
“What we have done in the past few years is apply technology into the wealth management area,” Paredes said.
The Covid-19 outbreak has helped virtual banks compete with bricks-and-mortar banks as preventive measures, and social distancing rules, have driven more consumers and businesses to online platforms.
At the same time, bad loans have jumped at traditional lenders amid the city’s worst recession on record. Pre-tax operating profits of Hong Kong lenders fell 20 per cent year on year in the first half of this year, according to data from the Hong Kong Monetary Authority.
Customers, who receive almost nothing from their saving deposits at traditional banks, receive more from the virtual banks. ZA Bank offered 6.8 per cent interest in January for its first 50 customers while it is offering 1 per cent interest rate for all customers now. Fusion ranked second highest at 5 per cent for a three-month deposit until the end of October up to HK$100,000.
Airstar offers a 3.6 per cent interest rate on savings of up to HK$20,000 for new customers, while Ant is offering a 2.5 per cent interest rate for deposits of up to HK$20,000 and 1 per cent for deposits between HK$20,001 and HK$50,000.
Hsu said virtual banks can offer more competitive savings rates than their traditional competitors because of their smaller cost structures, while they do not need to pay for rent and staff to keep a branch network.
WeLab offered a cashback reward of 8 per cent on all spending of up to HK$3,000 until the end of August, while Livi gave small cash incentives on spending. Mox meanwhile is offering a HK$1,000 cash rebate at 30 merchants until the end of this year and a 1 per cent rebate on other purchases. Ping An OneConnect and Ant focus offer loans for small and medium-sized enterprises.
Virtual-bank customers need only 3 to 5 minutes to open an account via mobile phone apps, while traditional lenders may need several hours to finish the paperwork.
“For the subset of virtual banks with a strong management team and a differentiated product road map, there’s real opportunity to chip away at the incumbents,” Lloyd said.
More from South China Morning Post:
- Mox, Standard Chartered-backed virtual bank, enters fray with cash rebates plan, shuns deposit gimmicks
- WeLab takes its virtual banking battle to Hong Kong’s bricks-and-mortar lenders with higher rates, rebates in opening salvo
- Hong Kong government has ‘not been bold enough’ in nurturing fintech development, says WeLab Bank chairman, former finance secretary Chan Ka-keung
- HSBC insists it does not need a virtual bank licence in Hong Kong, invests US$2.2 billion in raising digital banking game
- Ping An’s Hong Kong virtual bank to showcase tech prowess as it harbours ambition to go global