The HSBC Holdings Plc headquarters stand illuminated at night in the Central district of Hong Kong, China, on Monday, June 27, 2016. The relief rally endured, with Asian stocks, commodities and high-yielding currencies rising amid speculation policy makers will blunt the impact of the U.K.’s decision to leave the European Union with stimulus measures. Photographer: Anthony Kwan/Bloomberg
China's two top tech groups to compete with established rivals like HSBC and Standard Chartered. © Bloomberg

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.”

Quick Fire Q&A

Company name: Credit Kudos

When founded: 2015

Where based: London

CEO: Freddy Kelly

What do you sell, and who do you sell it to: We’re a credit bureau and open banking provider that helps lenders to make faster decisions, increase acceptances, and decrease defaults.

How did you get started: When Freddy returned to the UK after working abroad he realised the difficulties people face getting affordable credit with a ‘thin’ credit file.

Amount of money raised so far: £2.8m

Valuation at latest fundraising: n/a

Major shareholders: Sarah Willingham, Charlie Songhurst, John McAndrew and Graham Lund.

There are lots of fintechs out there — what makes you so special: Everyone deserves access to fair, affordable credit. We use technology and data to revolutionise the traditional credit scoring system.

Further fintech fascination

New frontiers: Goldman Sachs is moving into robo advice for the masses. The Financial Times reports that the Wall Street bank is aiming to offer digital wealth management services to people with $5,000 or more to invest from next year. The service will be offered through United Capital wealth management, which Goldman bought for $750m in May. 

Follow the money: US digital bank Chime has boosted its valuation from $1.5bn to $5.8bn in just nine months, according to CNBC. The new valuation comes via a $500m Series E funding round led by DST Global, which will be used to boost growth and double headcount. Acquisitions may also be on the cards. 

New frontiers (2): By Miles, a pay-as-you-drive insurance company, has launched what it calls the first ever connected car insurance policy. It will be available to Tesla drivers in the UK. By Miles will take information directly from the cars about how much they have been driven and then charge the customer accordingly. Other pay-as-you-drive insurance policies usually need a black box to be installed in the car. 

Crypto chronicles: FT Alphaville takes issue with a recent Deutsche Bank publication arguing that cryptocurrencies are set for huge growth. “They try to imply the growth in blockchain wallet-holders during the second decade of bitcoin’s existence will mirror that of internet users over the same timeframe,” says Alphaville, which adds that “Deutsche’s argument rests on a pretty shaky definition of what crypto actually is.”

AOB: Zopa, the UK-based pioneer of peer to peer lending, raised £140m from US investor IAG Capital as it attempts to become a full bank; Sifted reports on UK data showing that some traditional banks are still doing better than start-ups when encouraging people to switch current accounts. 

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