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Wealth management is becoming the next battle arena for Hong Kong’s two-year-old virtual banking sector. Photo: Shutterstock

Hong Kong virtual banks target billion-dollar wealth management fees as HSBC, Chinese banks slip up

  • Four of the city’s online banking platforms intend to compete for a slice of advisory and investment fees in next business leap
  • HSBC, other traditional lenders held HK$2.7 trillion worth of online investment products for clients as of June 30: HKMA data
Four of Hong Kong’s leading virtual banks are plotting their next phase of growth by targeting stable if not lucrative fees in the wealth management business, while some of their traditional industry leaders slipped up in recent quarters.

ZA Bank, Mox Bank, WeLab and Livi intend to offer wealth management services on their platforms later this year to improve or shorten their path to profitability, according to senior executives.

The focus on wealth management is seen as the next business leap since virtual banks started signing up customers in March 2020, just before the Covid-19 pandemic shifted more consumers and transactions onto mobile and internet sites.

“We believe the launch of the wealth management services will provide a stable fee income to our company, and hence a path for us to deliver a profit,” said Tat Lee, chief executive of WeLab Bank, whose backers include Li Ka-shing’s CK Hutchison and Sequoia Capital. “We can now offer fund products and wealth advisory services for investors.”

Tat Lee, CEO of WeLab Bank. Photo: Edmond So

Hong Kong’s traditional lenders had conducted HK$2.7 trillion worth of transactions in online investment products for their clients by the end of June 2021, according to data published by the Hong Kong Monetary Authority (HKMA). That is double the volume at the end of 2019, underscoring the potential in the business through digital platforms.

The HKMA has approved eight virtual banks to date to promote smart financial technology in the industry. They had accumulated 1.2 million online customers by the end of March, relying mostly on deposits and loans business. They remain unprofitable for now.

Not surprisingly, the wealth management business has become a key area of growth for HSBC, Standard Chartered and Chinese lenders like Industrial and Commercial Bank of China (ICBC). These decades-old banks have allocated vast capital to expand their reach in affluent markets like Hong Kong and Singapore.
While the eight virtual banks are constrained within the Hong Kong market, the future holds great promise. The launch of the Wealth Management Connect scheme has also widened access to the wealthy population in Greater Bay Area, though those efforts are not without challenges.

HSBC generated 28 per cent of its global pre-tax profit from its wealth and personal banking services, according to its first-quarter report. Revenue from the unit shrank 19 per cent as investment distribution dropped 21 per cent because of lower activity in the equity markets and branch closures in Hong Kong induced by Covid-19 curbs.

ICBC collected 45.2 billion yuan (US$4.53 billion), or 30 per cent of the group’s fees and commission income before expenses, from its personal and corporate clients in wealth management and private banking services in 2021. That was little changed from a year earlier.

“We overdid the task of reducing existing wealth management products,” the bank said in its report card on March 30.

China Construction Bank, which formed a venture with BlackRock and Temasek Holdings last year in a wealth management push, grew its wealth management and private banking fees by 19 per cent to 18.6 billion yuan. Even so, it has taken some hits, with provisions and credit losses stemming from rectifying its legacy business.

Large banking groups typically set a high threshold of at least US$1 million (HK$7.8 million) to qualify as wealth and private banking customers. Hong Kong’s virtual bank operators will have to find their niche in the lower tier of the city’s wealthy population.

Livi, a virtual bank backed by Bank of China (Hong Kong), has amassed 200,000 clients since its first day of business in May 2020. It is planning to offer wealth management services this year, subject to regulatory approval, after winning an insurance agency licence in February.

“Many wealth management customers are underserved,” its chief product officer Carol Hung Mun-sheung said. “We see high growth potential in emerging affluent customers with HK$200,000 to HK$300,000 of investible assets.”

Hong Kong has about 1.8 million affluent residents with about HK$300,000 to HK$1 million of net liquid assets to invest, WeLab’s Lee said, citing industry research. They could be served by virtual banks, he added.

ZA Bank, the largest virtual bank with 500,000 customers, has also obtained a licence to offer wealth management services on its mobile app, including fund products, chief executive Rockson Hsu said. This will help add to its menu of insurance, banking and wealth management services, he added.

Mox Bank, backed by Standard Chartered, gained 300,000 customers since launching its business in September 2020. It is currently applying for the necessary licences to join the fray, chief executive Barbaros Uygun said.

“Wealth management fee revenues will be an essential lever for virtual bank profitability in Hong Kong,” he added. “Covid-19 has shifted consumer behaviour online, making digital financial services, including wealth management services, attractive.”