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Hong Kong banks race for digital dominance

Eight new virtual groups are set to join the territory’s crowded market 

10 December 2019

Hong Kong is not a city obviously in need of more banks. Almost all Hongkongers have at least one banking product and HSBC alone has 100 branches in the territory.

Yet eight new entrants are set to join this crowded market in the next few months. They will be “virtual banks”, with no branches and a digital-first approach to doing business. 

They hope to emulate the success enjoyed by newcomers such as Monzo and Starling in Europe, by tapping into customers’ dissatisfaction with traditional banks.

Deniz Güven, chief executive of an as-yet unnamed virtual bank being launched by a consortium including Standard Chartered, said that Hong Kong is a “very mature market” for banking products, but he added: “when you look at the service level, Hong Kong is still immature.”

With the banking sector so densely populated, virtual banks always faced a challenge. Over the last few months though, the obstacles have multiplied.

When licences were granted between March and May this year, recipients could not have foreseen the chaos which Hong Kong has experienced in the months that followed. Clashes between police and protesters over the past six months have led to death, destruction and a deep recession.

Rolling out a massive marketing campaign in a city preoccupied by protests would be jarring. Launching a bold new bank with no fanfare is also an unattractive option. One corporate lawyer who knows the virtual banks describes them as “cagey” when it comes to confirming a launch date. Any movement in the next quarter, she said, was unlikely. 

The window of opportunity for virtual banks was opened by a lack of innovation and poor customer service among the established players. Across business sectors in Hong Kong, banking “ranked last for customer excellence” in a KPMG consumer survey of 1,999 consumers published last week. 

The expectations of consumers are “constantly evolving” in response to “new digital initiatives and capabilities,” said Isabel Zisselsberger, head of financial management, customer and operations for KPMG in Hong Kong. “The industry needs to catch up quickly,” she added.

Standard Chartered’s virtual bank will focus squarely on experience, said Mr Güven. “My KPI is not getting ‘this’ many customers,” he added.  But the longer virtual banks wait to launch, the more time incumbents have to counter with their own digital initiatives. Citigroup, which was the first bank to roll out internet banking in Hong Kong in 1998, didn’t apply for a licence earlier this year.

That “doesn’t mean [Citi] don’t want to be a virtual bank,” said Angel Ng, Citi’s chief executive in Hong Kong and Macau. “At one point, sooner than people expect, we will become a virtual bank. Today, 50 per cent of our accounts are acquired online…we are pretty much halfway there.” 

HSBC, which alongside its local sister bank Hang Seng, boasts a 40 per cent share of the retail banking market, has been busy bulking out its in-house digital team. It is also creating a spin-off company which will service loans to small and medium-sized businesses — a key target for the new banks.

According to Mr Güven, Standard Chartered opted for a separate entity so it could start from the bottom up. “What we are doing here is creating a future operating model…We are not just building a mobile app, it’s not a facelift.”

Getting into the market fast was important, he said, “but it may not be the best thing. Coming to market with the right value proposition is the most important thing.”