Bank customers with less than US$1 million each in deposits may make up the sweet spot for virtual banks to tap in Hong Kong, as they prepare to compete with bricks-and-mortar lenders for business, according to a panel discussion yesterday at the FinTech Week. Non-millionaires, euphemistically known as “preferred” or “premium” customers, are traditionally underserved by banks that operate physical premises, as the high rental charges and overheads imply a minimum deposit for lenders to break even. That leaves hundreds of thousands of underserved customers up for grabs, making up an estimated US$15 billion, or 30 per cent of Hong Kong’s combined retail banking revenue, according to WeLab’s founder and chief executive Simon Loong. “The cost of operating bank branches is high in Hong Kong, and that has forced banks to focus on wealth management,” said Loong, whose company is one of the eight virtual banks licensed to begin rolling out their services over the next few months. “So Hong Kong’s virtual banks could help with promoting financial inclusion, where everybody [can] get seamless financial services via mobile phones.” WeLab aims to launch its retail and payment-focused digital banking services in early 2020. The underserved market works out to US$1.88 billion on average for each of the eight licensed virtual banks, which goes some way to explain why they may yet find footholds in a city where 7.5 million residents are served by 164 licensed banks. The five largest banks, including the three biggest currency-issuing banks HSBC, Standard Chartered and Bank of China (Hong Kong), operate 45 per cent of the city’s 1,200 bank branches. Virtual banks are not merely tapping an underserved slice of the banking market, but are also aiming to disrupt the traditional notion of banking by forcing competition, technology and new services on the industry. There is “lucrative potential” among this group of customers, said Fred Lau, chief executive of Airstar bank, which is the virtual bank developed by AMTD Group and Chinese smartphone maker Xiaomi. Virtual banks can compete with licensed money changes who are charging up to 40 per cent per annum interest on loans, he said. “There is room to reduce interest rates to a lower percentage,” said Lau. During the stages, virtual banks may raise their deposit rates to compete directly head to head with traditional lenders, said Ryan Fung, chief executive of PingAn One Connect Bank, a unit of China’s largest insurer Ping An Group. “We would focus on serving small-to-medium enterprise, and microenterprises,” Fung said. “Together with retail customers, these are the underserved segment that we see opportunities in.” Under the license terms of the Hong Kong Monetary Authority (HKMA), virtual banks in the city are not allowed to operate physical branches. That has driven virtual banks to leverage on their partners’ clientele networks for reach. WeLab’s loans unit WeLend had begun offering instantaneous cash loans for customers since September 2018 via smartphones on the 3 network, the mobile phone and data service operated by CK Hutchison. WeLends technology can support real-time credit assessment via 3’s network. “We will leverage on our business partnership with 3 to get our loans approved instantly when [customers] buy their mobile phones,” said Loong.