Allow small firms to join fintech revolution
- Licences for virtual banks have so far been handed out to big players but this could defeat the purpose of the exercise, which is to cater to smaller customers
Bankers and financiers have long rhapsodised about the potential of financial technologies. Now that fintech is finally arriving in Hong Kong, they may be in danger of having their lunch eaten by the tech giants. The second batch of digital banking licences has just been handed out, and the winners include such dominant mainland tech players as Tencent, Alibaba – parent company of the South China Morning Post – and Xiaomi, the world’s fourth-largest smartphone maker. Ping An, the world’s largest insurer, has also secured a licence.
The first licences issued by the Hong Kong Monetary Authority (HKMA) earlier this year went to joint ventures under the Bank of China (Hong Kong) and Standard Chartered, two of the city’s money-printing institutions, as well as mainland online insurer ZhongAn. The latest players are not only at the forefront of consumer technologies, they are also among some of the world’s most capitalised firms. They will give traditional banks in Hong Kong a run for their money.
In the United States, we have already seen Apple, Amazon and Google encroaching into the financial services sector long dominated by the big banks. In Hong Kong, the competition for customers may be even fiercer. Customer satisfaction with banking services is low in Hong Kong. A recent survey by international consultancy Accenture found that only 53 per cent of locals were happy with their banks, compared with 88 per cent in the US and 78 per cent in Britain.
An analysis by Goldman Sachs estimates up to 30 per cent of the city’s total banking revenue may be eaten up by the new digital services. It’s not hard to see tech-savvy Hongkongers switch to virtual banks for lower fees and faster services.
In the first round of licensing, the HKMA was cautious and clearly wanted to make sure the new digital banks were backed by experienced and well-financed institutions. In the latest round, it is clearly hoping the tech giants will release the full power of fintech in addition to introducing much-needed competition.
But the HKMA may be in danger of letting the new field be dominated by big players. With reduced overheads and staff counts, virtual banks ought to cater to less affluent customers and smaller companies with fewer charges. This means smaller but innovative firms ought to be encouraged to join the fray.
