Last week the Hong Kong Monetary Authority announced more licences for ‘virtual banks’, or banks that do business through digital channels rather than physical branches. Firms from mainland China feature strongly, signalling how Hong Kong has a lot to learn about fintech from across the border.
How much of the future of fintech is Chinese? That’s the question being asked in Hong Kong after its monetary authority granted another batch of licences for virtual banks in the city.
Eight licences have now been issued in total – and seven are backed by internet or financial companies from the Chinese mainland.
Bank of China, online insurer ZhongAn and travel giant Ctrip are already partners in joint ventures approved earlier this year. Last week Tencent and Alibaba were also given the nod, as was Xiaomi, the fourth-largest maker of smartphones, and Ping An, the world’s largest insurer.
Two of the group – Ping An and Tencent – are headquartered in the Greater Bay Area. But only one of the licences on the list went to a local fintech firm, prompting some newspapers to report the news under a ‘Hong Kong under attack’ story line.
Another theme in the local press is that the traditional banks should be worried as the full weight of China’s tech sector bears down on the city. “Eight new ambitious and well-capitalised ‘challenger’ banks coming to market in or around the same time have the potential to inflict considerable damage on incumbent players – as well as on each other,” warned James Lloyd, EY’s fintech leader for Asia Pacific. “Expect fireworks,” he added.
The story is more nuanced than Hong Kong being served up as a sacrificial lamb. For a start, the mainland firms will bring a shake-up to the sector that should be benefit retail customers. Local policymakers are also hoping to kick-start a clustering effect in fintech, bolstering Hong Kong’s reputation as a global financial centre and giving it an edge against competitors like Singapore.
Forging ahead in fintech also fits with Hong Kong’s positioning in the GBA, where it wants to be the primary gateway between the region and the wider world, especially in financial services. More global in its outlook, and with regulatory standards that are better respected overseas, its financial sector could serve as a bridgehead for the virtual banks to get into other markets, including the licence holders from mainland China.
Hong Kong also gets the chance to learn from across the border, where some of the new licence holders have been operating as virtual banks for nearly five years. Digital payment has been the most disruptive of the new trends in the banking sector, so much so that China’s central bank has even warned of penalties for vendors who refuse to accept cash. Alibaba and Tencent are the dominant players, processing the massive majority of cashless mobile transactions worth more than $15 trillion in 2017, or more than 40 times the amount in the United States. But while fintech is bringing fundamental changes, Hong Kong’s banking bosses have clearly decided they are something worth tapping into rather than trembling about.