Virtual banks close to reality as Hong Kong issues guidelines with 50 companies showing interest

More than 50 companies from across the world have expressed interest in applying for virtual bank licences, with Hong Kong Monetary Authority setting August 31 as the deadline for receiving applications for the first batch of purely online banks.

“We have set up a special team to handle the applications,” HKMA deputy chief executive Arthur Yuen Kwok-hang told a media briefing after Hong Kong’s de facto central bank and regulator issued the guidelines on Wednesday. “For those who want to be among the first batch of applicants, they should submit the application before the end of August.”

Yuen said he was not be sure if all these 50 firms would submit applications, although many of them had already given some initial information about their business plan.

“These companies came from Hong Kong, the mainland and elsewhere,” Yuen said and hoped that the first licences could be issued by the end of this year or the first quarter of next year.

The HKMA will scrutinise the IT platform of the applicants, the viability of their business plans and their financial background.

Now that the guidelines have been issued the applicants can formally apply for a licence immediately.

Simon Loong, co-founder of the home-grown fintech unicorn WeLab, who had previously told the Post that his company would be among the first applicants for a virtual banking licence, welcomed the move.

“We believe the HKMA has provided clear guidance on the expectations for the operational and risk management of a virtual bank, to facilitate the application process for interested applicants such as WeLab,” Loong said.

“Now that the HKMA has set out the clear criteria for priority handling of virtual bank applications ... we will strive to be in the first batch of applicants for the virtual banking licence in Hong Kong and continue to promote financial inclusion and Fintech development in Hong Kong.”

The virtual banking regulations are not much different from the proposals set forth for consultations in February, with all 25 respondents including the Hong Kong Association of Banks, and the Consumer Council supporting the proposals.

The HKMA’s chief executive Norman Chan Tak-lam last September announced plans to introduce virtual banks in Hong Kong to usher in a “new era of smart banking”.

Virtual banks looking to set up in Hong Kong will need to have at least HK$300 million (US$38.36 million) in capital, and cannot impose a minimum account balance or low balance fees. They cannot charge excessively high interest rates or engage in over-aggressive strategies to compete for market share.

Although these virtual banks will only operate online, the authority requires them to have at least one physical office that can also handle complaints from customers. They would need to have an exit plan.

Yuen also said the HKMA was yet to set a cap for issuing licences and that some conventional banks had expressed interest in applying for a virtual bank licence.

He expects the virtual banks to offer simple services such as deposits and lending for individuals and SMEs.