The world of virtual banking will see strategic partnerships between banks and fintechs: KPMG
Hong Kong’s financial services industry is likely to move towards an ecosystem of traditional banks collaborating with innovative start-ups, technology and telecom companies, forging strategic partnerships and adopting fintech solutions to enhance service offerings, according to KPMG.
The introduction of a new licensing regime for virtual banks by the Hong Kong Monetary Authority this year, which deliver retail banking services through the internet or other electronic channels instead of physical branches, is a significant factor in bringing a new era of smart banking to the city. The city’s de facto central bank has set a deadline of August 31 for receiving applications for the first batch of virtual banks.
The initiative is designed to give new players – non-banks – a level-playing field to set up banking operations to supplement their existing non-financial services to enhance customer-focused digital services, said Paul McSheaffrey, partner and head of Hong Kong banking at KPMG China, in an interview.
By adding a range of financial and payment services from cinema ticket purchases to booking taxis on to their core messaging and gaming businesses, Tencent Holdings’ WeChat Pay and Ant Financial Services’ Alipay have become the primary platforms of choice and are winning the competition against traditional banks to engage Chinese retail customers in financial services.
But Hong Kong is still lagging behind in developing digital banking. Control over the predominant platforms in Hong Kong is still undecided, which is the key to owning the valuable customer relationship, said McSheaffrey.
“What is crucial in Hong Kong is it has still not been decided who will run the platform [of digital banking], which is still up for grabs. It is likely to be a combination of technology companies and banks together that will drive this ecosystem,” said McSheaffrey.
The company that is going to be truly successful will be the one that owns the customer relationship and the interaction with the users allowing it to generate data and tailor products and services.
This means the company will be able to select other providers to provide services on its platform to give what the customer wants, and thereby capturing the most value while other companies merely are “service providers”.
Trust, personalisation and convenience are also factors that are needed to enhance customer experience, said McSheaffrey.
“Whichever company that can control the customer relationship, that is where the real value is going to be,” McSheaffrey said.
Technology has already enabled traditional banks to provide basic online and mobile banking services but new entrants should provide an impetus to traditional banks to collaborate with innovative start-ups that would change how many retail customers and small medium enterprises consume financial services.
Many fintech companies have developed innovative technology that can enhance the overall customer experience, lower the costs of financial products and facilitate the granting of loans to consumers who otherwise do not have the credit history to obtain finance from traditional banks. This could encourage traditional banks to further develop their own platforms and customer-focused digital services, thereby raising the bar across the entire banking sector in Hong Kong
WeLab, Hong Kong’s home-grown fintech unicorn, told the Post in May it would be among the first batch of companies to apply for a virtual banking licence from the HKMA after the guidelines were issued.
Bank of East Asia has teamed up with internet giant Tencent and online travel provider Ctrip, and is seeking more tech partners to develop its virtual banking services.
Opportunities to banks are likely to arise from the ongoing development of the Greater Bay Area in southern China to transform the region into a global technology hub.