Hong Kong’s cheques are heading for the dust heap of history even if branches remain in the age of virtual banks

·4-min read

Cheques are likely to be relegated to the dust heap of history, becoming a relic of traditional banking in Hong Kong as a new generation of customers embrace the convenience of instantaneous, paper-free electronic transfers in the age of virtual banking, according to financial executives.

Transactions by cheques shrank 3 per cent in May to 5.46 million from a year earlier, according to data provided by the Hong Kong Interbank Clearing. Compared to August 2018, a month before the Faster Payment System (FPS) was introduce to enable instant, costless remittance, the contraction was 29 per cent. The FPS has grown 12-fold since its launch, with 20.35 million transactions last month.

“Cheques will go away,” said Rockson Hsu, chief executive of ZA Bank, the first and largest of eight virtual banks that began operation in Hong Kong, during the China Conference: Hong Kong organised today (yesterday) by South China Morning Post. “Many peer-to-peer fund transfers and payment [methods] can already be conducted by e-wallets or the government’s faster payment system.”

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In many aspects of Hong Kong’s daily life, the cheque is still the preferred instrument of payment instruction, from putting a deposit down on an apartment to applying for a gym membership. Still, the gradual erosion of its status and its displacement by FPS and a host of digital remittance systems mark a significant behavioural change among customers in Asia’s second-largest capital market.

SCMP Graphics
SCMP Graphics

Hong Kong’s eight virtual banks, a major part of the fintech – the enhancement of financial services through the adoption of technology – push by the Hong Kong Monetary Authority (HKMA). Their licenses compel the banks to operate entirely online. Since their launch, the eight banks have collectively secured 600,000 customers, with HK$20 billion (US$2.6 billion) in combined deposits as of March.

The rapid growth of virtual banks, some after just a few months of operating, is the clearest sign that the fintech-enabled banking can compete in a city of 1,200 branches by 155 licensed banks for 7.5 million people, making Hong Kong one of the most overserved urban centres on earth for financial services.

(L-R)Lawrence Lam, chief executive and customer business manager of Citibank (Hong Kong); Ryan Fung, chief executive of Ping An OneConnect Bank; Enoch Yiu, Chief Reporter, Business, SCMP; Rockson Hsu, chief executive of ZA Bank; attend SCMP China Conference in the SCMP office in Causeway Bay on June 16, 2021. Photo: SCMP
(L-R)Lawrence Lam, chief executive and customer business manager of Citibank (Hong Kong); Ryan Fung, chief executive of Ping An OneConnect Bank; Enoch Yiu, Chief Reporter, Business, SCMP; Rockson Hsu, chief executive of ZA Bank; attend SCMP China Conference in the SCMP office in Causeway Bay on June 16, 2021. Photo: SCMP

Still, one vestige of traditional banking that will not disappear altogether is the bank branch, the bricks-and-mortar space where customers conduct their banking, from seeking financial advice to the mundane task of paying bills, and making a cash or cheque deposit.

“Instead of doing transactions, the branch will be used for the customers to make inquiries and advisory services,” said Lawrence Lam, chief executive and customer business manager of Citibank (Hong Kong), which has operated for 119 years in the city.

“The number of bank branches will decrease because the average consumer only goes to a [physical outlet] once every 18 months,” Lam said, which compels banks to alter the services they offer through their physical presence.

The cost of running a bank branch in Hong Kong – the most expensive real estate market in the world – can amount to HK$1 million a month in wages and rent.

This makes loans below HK$200,000 unprofitable, according to a veteran banker. This is why small depositors and small and medium-sized companies do not seem to enjoy good banking services, as banks tend to focus on big-ticket clients.

Virtual banks, on the other hand, cannot have bricks-and-mortar branches, and must use apps, the internet and ATMs to serve customers. Their reliance on technology is, therefore, key to cutting costs and keeping smaller loans profitable.

Many transactions can be performed digitally, resulting in “transactions by cheques declining substantially in recent years,” Lam said.

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