The first in a new line-up of 10 digital-only banks in Hong Kong has sweetened its consumer appeal with a 6 percent introductory rate for deposits. ZA Bank will pay a select depositors more than 3 percent above other banks, such as HSBC and Standard Chartered, according to Bloomberg.
Hong Kong is experiencing other business challenges. Thus, while many are skeptical that these compelling rates can be maintained, the introductory deal illustrates the competitive level for Hong Kong’s “$410 billion local currency time-deposit business.”
“This is more of a gimmick, which shouldn’t become a norm,” said Terry Siu, treasurer of CMB Wing Lung Bank, which currently pays 3.8 percent to new customers for two-month deposits of Hong Kong dollars. “But competition for funds is indeed getting higher, as eight more banks are coming out.”
In 2019, Ant Financial and Tencent Holdings, among other Chinese companies, were granted operating licenses by the Hong Kong Monetary Authority (HKMA) for virtual banks. The industry launch comes amid tension from recent pro-democracy protests that have not been winding down. An HKMA spokeswoman told Bloomberg last week that promotional rates will vary.
“While the [HKMA] will not interfere with the commercial decisions of individual institutions, it would be a concern if a virtual bank planned to aggressively build market share at the expense of recording substantial losses in the initial years of operation without any credible plan for profitability in the medium term,” she said.
Virtual banks are “similar to traditional retail banking services, in some ways” (e.g., taking deposits, issuing loans, etc.), but they don’t necessarily utilize physical branches, reducing overhead expenses. Bloomberg intelligence projected that these digital ventures would face challenges making inroads in Hong Kong’s loan market.
“[Hong Kong] citizens are less inclined to adopt new FinTech offerings,” said Francis Chan, a senior analyst at Bloomberg Intelligence, “as they are accustomed to comprehensive services offered by global banks, such as HSBC and Citibank. Online lenders may find it difficult to tap new customers, partly due to the dominance of credit cards and Octopus cards.”
Alan Yip, a strategist at the Bank of East Asia, is also cautious.
“Traditional banks are only taking a wait-and-see approach now, as the virtual banking business has yet to make a splash,” he said. “The market impact shouldn’t be very significant yet, as they will need time to develop. Therefore, the higher rate may not become a trend soon.”