HONG KONG’S VIRTUAL BANKING LICENSE DRAWS A CROWD: Financial services giant Standard Chartered has set up a subsidiary for its forthcoming digital-only bank and applied for a virtual banking license in Hong Kong. The bank announced its intention to apply for the license in June, and is creating this new venture to help it breakaway from its legacy systems, in an effort to better collaborate with startups and acquire new clients, it said. The territory’s financial regulator, the Hong Kong Monetary Authority (HKMA), announced the decisionto issue its first online-only banking licenses in May 2018. And the HKMA says over 70 firms have shown an interest so far, according to Reuters.
The virtual banking license is designed to increase competition in the Hong Kong banking sector. Authorities in the territory are keen to further develop Hong Kong’s fintech ecosystem and improve competition in a market that is primarily dominated by three players: HSBC, Bank of China, and Standard Chartered. This new regulation should rattle the dominance of these firms by enabling more entrants to participate in the banking space. According to people familiar with the matter who spoke with Reuters, Alibaba subsidiary Ant Financial and hardware conglomerate Xiaomi are also set to apply. The HKMA’s shakeup also aims to improve customer experiences, as only 53% of consumers in Hong Kong are satisfied with their banks, per a 2017 Accenture report. This is significantly lower than customers in the US and Australia, with 88% and 72%, respectively, reporting satisfaction. Against this new backdrop, Standard Charter’s decision to flip the switch and deploy its own virtual bank could help it stave off some of this new competition and remain relevant.
This initiative could make Hong Kong a more attractive market for fintechs broadly. Tencent-backed Australian fintech Airwallex’s decision to relocate to Hong Kong in the hope of securing a license is a prime example of how the revised regulations are stimulating new entrants to enter the territory. This added competition should benefit consumers, but also spark incumbents to innovate as their entrenched positions become more accessible to competitors. In the long run, this could see Hong Kong’s already burgeoning fintech ecosystem flourish further, allowing it to shrug off regional competition from the likes of Singapore and put pressure on global hubs like London.