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Hong Kong Readies First Digital Banking Licenses

Hong Kong's financial services market is gearing up for a battle between FinTechs and traditional institutions as the government prepares to issue its first online-only banking licenses.

Reports in Reuters on Thursday (Aug. 30) said that FinTechs, telecommunications companies and other banks are expected to apply for the licenses as Hong Kong works to promote competition in its retail and small business banking market. Recipients of the licenses will have to compete directly against the industry heavyweights HSBC, Bank of China and Standard Chartered.

According to reports, Ant Financial, Tencent and Ping An Insurance are expected to apply for a license, unnamed sources said. Standard Chartered confirmed it has set up its own separate digital banking entity, which will apply for a license, while Hong Kong-based FinTech WeLab is also expected to apply.

Researchers from Accenture found last year that only 53 percent of customers in Hong Kong are satisfied with their banks. The introduction of online-only banks could spur consumers who are ready to try something new to switch banking providers.

"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 Accenture Asia Pacific Managing Director Fergus Gordon in an interview with the publication.

Small businesses will be a particularly big target for the online banks, reports said, as providers aim to introduce online lending, foreign exchange and business payment services, unnamed sources told Reuters.

The publication highlighted the potential gain for new market entrants. Currently, HSBC, Hong Kong's market leader, posted $1.4 billion in profits in its retail and wealth management operations for this year's second quarter. The market accounts for 80 percent of its global banking revenue, reports noted.

Two sources told Reuters that HSBC is not planning to apply for a digital banking license, instead choosing to focus on enhancing its core offerings and injecting those services with digital tools.

According to Gordon, new market entrants will be challenges "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."



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.