ZA Bank, co-owned by mainland online insurer ZhongAn Online P&C Insurance and Sinolink Group, on Wednesday became the first virtual bank to start services in Hong Kong after gaining regulatory approval from Hong Kong Monetary Authority. ZA Bank will allow its 2,000 selected users, which includes friends and relatives of its staff, to try its services, such as remote account opening, multicurrency savings account, time deposits, local transfers and e-statements, according to a statement from the bank. The bank said that customers can open an account in five minutes using only a Hong Kong identity card. “‘ZA’ represents a reverse of the alphabetical order – going from Z to A – reminding us to always think out of the box and view things from a different perspective,” said Rockson Hsu, chief executive of ZA Bank. “It’s good to be bold, contrarian and creative. ‘Z’ and ‘A’ also means ‘end-to-end’, it symbolises our mission to redefine customer journey through technology, from the front-end (mobile app/branch), mid-office (customer service/operation department) to back-end (operating system), from product development to service process.” ZA Bank said it would offer an interest rate of 1.4 per cent for a one-month Hong Kong dollar time deposit, which rises to 2 per cent for three, six and 12-month tenors. Hong Kong virtual banks’ profitability hinges on their ability to harness payroll accounts, says KPMG The rate is in line or slightly below some major traditional banks. HSBC, for example, offers interest rates ranging from 2.15 per cent to 2.55 per cent for its three-month and six-month deposits, while its 12-month deposit rate ranges between 1.8 per cent and 2.2 per cent, depending on the account category and the amount of new deposit. However, ZA Bank’s terms are more flexible as it allows customers to open a time deposit account with only HK$1, while HSBC requires customers to deposit at least HK$10,000 to enjoy the higher rates. ZA Bank also accepts US dollar and yuan time deposits ranging from one, three, six and 12 months, with interest rates ranging from 1.6 per cent to 2.2 per cent. The launch marks a new era in Hong Kong’s banking history as this is the first time the city will have banks that offer services purely online, catching up with Europe, Japan, and the US and mainland China. Hong Kong, however, is ahead of other Asian regions, as the city has already granted eight virtual bank licences since March, while Singapore is planning to issue five virtual bank licences. As HKMA’s rules bar virtual banks from operating physical branches, only allowing them to offer services through mobile and online apps for customers, analysts say this will create new possibilities for fintech, leading to innovative products and services. The freedom to operate without a bricks-and-mortar presence means they can save on operating costs, use fewer employees and focus on operational efficiency. ZA Bank’s launch falls under HKMA’s so-called sandbox mechanism, which will allow the banking regulator to oversee the new technology-driven services to test its stability and customer behaviour. If all goes well, the de facto central bank will allow ZA Bank to roll out the services to the general public. Hong Kong virtual banks could soft-launch some services in fourth quarter, monetary authority says The other seven online-only banks are expected to start operation in the first half of next year. “The HKMA encourages the development of virtual banks, as it can help promote financial innovation, enhance customer experience and facilitate financial inclusion,” Arthur Yuen, deputy chief executive of HKMA, said in an article on the authority’s website. “Retail customers and small and medium-sized enterprises are the target customers of virtual banks,” Yuen said, adding that this marks a major milestone in the development of Hong Kong’s banking industry. The debut of ZA Bank is part of HKMA’s efforts to allow a new generation of banks to add competition and innovation in the banking sector, where the city of 7 million residents is already served by 164 licensed banks. HKMA had previously predicted that in three years’ time, the eight virtual banks together would represent up to 5 per cent of retail banking business in Hong Kong. James Lloyd, partner and Asia-Pacific fintech leader at accounting firm EY, said that while other virtual banks were also testing their systems, they will be considering the trade-offs between speed to market and ensuring the right offers and functionality to draw customers. “It’s unlikely that any of challengers will focus on transaction fees – at least in the short run – so the race is on to build up the deposit base, and from there offer competitive credit products. This is good news for Hongkongers, as incumbents will be forced to respond in kind,” he said. The virtual banks need HKMA’s approval regarding their system stability, ability to defend against cyberattacks and how quickly they can resume operations after a systems break down. ZA Bank, together with two separate joint ventures backed by note-issuing banks Standard Chartered and Bank of China (Hong Kong), are among the eight that have been licensed to pioneer virtual banking in the city. Other licensees include WeLab, Ping An Insurance Group subsidiary Ping An OneConnect, Ant Financial Services Group’s Ant SME Services unit, a Xiaomi-AMTD Group venture called Insight Fintech, and the Infinium consortium, which has been rebranded as Fusion Bank, backed by Tencent Holdings, ICBC (Asia) and Hong Kong Exchanges and Clearing.