New name for Hong Kong virtual banks to boost trust
- Hong Kong Monetary Authority hopes proposed term ‘licensed digital bank’ will inspire confidence in those that use such facilities when online fraud is on the rise
The traditional notion of what makes an institution a bank is that if it is licensed to take deposits, lend money and is subject to regulatory oversight, it should meet the definition of one. These “banks” also should denote, psychologically, a sense of safety and security so depositors have the confidence to keep their money there.
So-called virtual banks satisfy the former technical criteria, but they can still do more to inspire consumer confidence. This is especially so at a time when online fraud is prevalent and has been going up year after year.
That is the main reason the Hong Kong Monetary Authority plans to replace the term “virtual bank” with “licensed digital bank”. A month-long consultation has been launched.
The move comes none too soon.
People have long been accustomed to online banking. Virtual banks are the logical extension.
They are certainly taking off, having garnered a combined 2.2 million customers by the end of last year, an increase of 20 per cent from a year earlier. Total deposits jumped 23 per cent year on year to HK$37 billion (US$4.7 billion), while loans rose 19 per cent to HK$19 billion during the same period.
Revenue in the first half of last year stood at HK$530 million, almost double that of the previous year.
The Covid-19 pandemic turned out to be a godsend for virtual banks as more people worked from home while hundreds of traditional bank branches suspended operations. Unfortunately, online fraud has also jumped.
The number of deception cases surged 55.2 per cent involving HK$900 million in the first quarter, while online fraud, phishing, phone scams and all forms of cybercrimes racked up HK$20 million in losses for local residents. Just last year, JPEX allegedly made off with HK$1.3 billion from more than 1,600 local investors by claiming to operate an unlicensed cryptocurrency trading platform.
Its name resembled “virtual bank” in Chinese translation.
Such banks are supposed to offer more innovative and convenient online services than traditional banks. In fact, they are barred from having physical branches.
Without expensive overheads, they can pass on savings to customers. They may go further by establishing themselves as on par with the security of traditional banks.
