The Hong Kong Monetary Authority has received applications for virtual banking licenses from at least a dozen banks, fintechs and telecom firms, Reuters reports.
The bidders include China’s Ant Financial, Tencent (00700.HK), and Ping An Insurance (601318.CN), the news agency said, citing people familiar with the process.
Also expected to line up for the licenses are Bank of China (Hong Kong) (02388.HK), smartphone maker Xiaomi (01810.HK) and online insurer ZhongAn (06060.HK), the report said.
Standard Chartered (02888.HK) has said it will also be applying, and so have telecoms operator HKT Trust and HKT (06823.HK), and fintech companies like WeLab Holdings and TNG Wallet.
The deadline for the first batch of applications is Friday.
Successful applicants for the online-only banking licenses will gain access to the city’s 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 with 88 percent in the United States and 72 percent in Australia.
Small firms, which 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 potential prize is enormous. HSBC alone made profits of US$1.4 billion 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 license in Hong Kong, as the bank is focusing on bolstering its core services using digital technology, Reuters quoted its sources as saying.
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 work with startups to tap new clients, the sources 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 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 cyber security, 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.
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 licenses toward the end of this year or the first quarter of next year, it told Reuters, adding that it would supervise virtual banks in the same way as conventional lenders.
While the HKMA did not comment on how many licenses it was likely to grant in the first phase, sources said it was not expected to give more than three in the near term to ensure an orderly rollout.
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