Date
24 June 2018
Europe-based digital bank Tandem, founded by Ricky Knox (right), and N26, co-founded by Maximilian Tayenthal (left), enable customers to manage their bank accounts through smartphones, with more robust online service offerings. Photos: HKEJ
Europe-based digital bank Tandem, founded by Ricky Knox (right), and N26, co-founded by Maximilian Tayenthal (left), enable customers to manage their bank accounts through smartphones, with more robust online service offerings. Photos: HKEJ

As HK gears up for virtual banks, experts tout the benefits

As part of initiatives to take Hong Kong into a new era of smart banking, the Hong Kong Monetary Authority (HKMA) last month issued an update on a guideline related to authorization of virtual banks, a step seen as preparation for virtual banking push in the city.

Different from e-banking platforms offered by traditional banks, a “virtual bank” is defined as an entity which delivers retail banking services primarily, if not entirely, through the internet or other forms of electronic channels instead of physical branches, according to HKMA.

In addition to banking services like checking and savings accounts, loans, and credit cards, virtual banks are capable of servicing clients 24/7, and in general provide more robust online services including online account opening, free peer-to-peer transfers, financial planning capabilities, online bill paying, and loan calculator tools.

To gain an insight into the future of virtual banking and the experiences of players elsewhere, the Hong Kong Economic Journal recently spoke to Ricky Knox, founder and CEO of Europe-based digital bank Tandem; and Maximilian Tayenthal, co-founder of German mobile bank N26.

Knox stressed that virtual banks can move faster on innovation than traditional banks, which tend to function according to rigid corporate hierarchies.

Adaptability and agility represent the strengths of virtual banks, he said, adding that the new entities can disrupt the sector without having to face much stress themselves.

Knox’s UK-based firm, for instance, ensures that users need to spend less time worrying about their money as the customers can manage their bank accounts through a mobile app.

Late last year, Tandem acquired Harrods Bank, the banking arm of the famous Harrods department store. Among various products and services, the digital bank launched last month a credit card that offers cashback and no fees when spending abroad.

In an example of developing a creative structure, Tandem collected over 10,000 people as the company’s “co-founders”, who joined on an invite-only basis. The people served as contributors who provide ideas and test features for the company, receiving one share in the business in return.

Knox said such business strategy ensures that every single feature and product is consumer-centric.

N26, another player from that region, claims that it is Europe’s first mobile banking startup with a full European banking license.

Founded in 2013, N26 enables its customers to manage their bank accounts through smartphones, with all services collated in its mobile app.

The German mobile bank now has over 500,000 customers from 17 countries in Europe and a collected capital of more than US$55 million.

According to tech database Crunchbase, N26 received US$40 million in a Series B funding round in 2016, led by Horizons Ventures, the private investment arm of Hong Kong billionaire Li Ka-shing.

N26’s existing investors also include US tech tycoon Peter Thiel’s venture capital fund Valar Ventures.

Tayenthal claims that N26 is redefining banking services, with the promise of faster, easier, mobile and more personalized offerings, whereas traditional banks focus on rolling out new interfaces for their existing products and outdated information technology systems.

In the revised “Guideline on Authorization of Virtual Banks” published by HKMA last month, the city’s de facto central bank said that “banks, financial institutions, and technology companies may apply to own and operate a virtual bank in Hong Kong.”

Firms that intend to apply for a license may submit applications now, it said.

Any player who gets the go-ahead should “play an active role in promoting financial inclusion in delivering the banking services,” the HKMA said, adding that the digital entities “should not impose any minimum account balance requirement or low-balance fees on their customers.”

The new round of public consultation started from early February and will last until March 15, after which a revised guideline would be published in May 2018, according to the central bank. 

This article appeared in the Hong Kong Economic Journal on March 12

Translation by Ben Ng

[Chinese version 中文版]

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BN/RC

Hong Kong Economic Journal

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