Hong Kong’s first virtual bank offers juicy 6.8 per cent interest rate in gimmick. Here’s how one SCMP reporter did in race

Hong Kong’s first virtual bank – ZA Bank – has been offering up to a very juicy 6.8 per cent interest rate on deposits. But there’s a hitch – the 50 winners had to sign up a lot of friends.

Virtual banks like ZA Bank are restricted solely to the online world and are just firing up in Hong Kong. They will offer fewer services such as credit cards, at least initially, and more gimmicks – like ZA Bank’s race to win high deposit rates based on signing up friends. The gimmicks are intended to create buzz to get more customers.

ZA Bank, a joint venture between a unit of ZhongAn Online P&C Insurance and Sinolink Group, is one of eight virtual banks licensed by the Hong Kong Monetary Authority last year to boost financial technology (fintech) and smart banking in the city.

After ZA Bank received approval on December 18 to start a trial run – making it the first virtual bank to get up and running – it has opened 1,700 accounts. As a virtual bank, it can only use mobile phone apps and other online tools to offer banking services.

Just like its overseas peers, ZA Bank is offering high deposit interest rates and low lending rates to attract clients. The author of this article, a reporter from the South China Morning Post, tried its services. Here is her first-hand experience.

Who can open an account?

In the trial run, the bank hosted an “Account Opening Race” from January 13 until February 21 – in which people could win a chance to open an account.

After registering with its social community club ZA Fam, contenders referred friends. A person got a better shot at winning high-interest deposit rates by signing up more friends. The highest interest rate was the 6.8 per cent per year, with deposits capped at no more than HK$100,000 and held for three months. In comparison, HSBC, the biggest bank in the city, offers 1.85 per cent for a three-month deposit of between HK$10,000 to HK$500,000.

Only 50 customers got that rate. The SCMP reporter sorely missed the cut, ranking at 1,225.

After eight rounds in the “race,” the reporter referred three more friends and won the chance to open an account at 4.8 per cent.

According to ZA Bank, it has signed up 1,700 customers, many of which opened accounts and deposited money. Another 300 applicants can sign up for the 2,000 limit the monetary authority placed on the trial run. But the race for the 6.8 per cent rate is over.

“As new entrants, these virtual banks will need to think of some special strategies to build up their brand awareness. They like to offer interactive measures to attract users to go to their app or website. They may also want to offer high-interest rates as a way to capture the public attention,” said Gary Ng Kwun-ho, a partner at PwC who specialises in virtual banking practise. Ng, however, does not think the high-interest rate offering will be able to last over the long term.

Payroll accounts are on big ultimate prize for these virtual banks, said Paul McSheaffrey, partner and head of banking and capital markets, Hong Kong at KPMG China.

“We believe that capturing a reasonable share of current accounts into which payroll is paid is critical for the sustainable success of those virtual banks, which are focused on the retail sector. This reflects the fact that these are generally non-interest bearing (i.e. no cost to the bank) but, more importantly, they are an ‘anchor’ product. They make it more likely that customers will use other financial services from the VB including wealth, savings accounts and lending.”

How long does it takes to open an account?

ZA Bank claims it takes only five minutes to open an account. But the SCMP reporter needed 30 minutes to complete the complicated process.

While it is simple to fill in information on the mobile phone app, applicants must scan their Hong Kong ID cards and also have their photo taken by the site, which involved such requests as shaking one’s head and blinking one’s eyes. Those tasks took the SCMP reporter 20 minutes.

Still, the opening process is far quicker than that at many traditional banks.

What services are available?

ZA Bank and other virtual banks have been given full banking licences. That means they can offer a full range of services, including loans, deposits and mortgages. In its trial run, ZA Bank accepted deposits and offered loans.

The deposit service at ZA Bank is a bit clunky. Since there is no branch or ATM, customers must use the Hong Kong Monetary Authority’s electronic interbank fund transfer platform – Faster Payment System – to transfer funds from other banks to the ZA Bank account.

Many banks have a daily transfer cap of HK$10,000 via the Faster Payment System, meaning a HK$100,000 deposit would have to be staggered over 10 days.

For loans, the site has an online calculator that, based on salary, determines the amount of a loan an applicant can get. In the SCMP reporter’s test, a loan equal to one year of salary was offered, with a wide range of interest rates.

Can I get cash or go shopping?

Virtual banking is not really meant for that.

To access cash, money from the virtual bank can be transferred through the ZA Bank app to a traditional bank through the Faster Payment System.

For shopping, shops that have joined the Faster Payment System can be paid directly. Or funds can also be sent to e-wallets.

ZA Bank has already announced it has teamed up with Visa but has not said if that will mean it will offer any credit cards.

How is the work-at-home spike impacting virtual banks?

“We noted that most of the clients have already placed their deposits with us and try to enjoy that benefit as much as possible. The total amount of deposit is growing steadily, and we expect more to come,” said a ZA Bank spokeswoman.

“We are very pleased to receive such a positive response, which encourages us to remain steadfast to provide better user experience through a ‘community-driven’ approach.”

The bank said the coronavirus epidemic, which has forced many people to work from home, reflects “the importance of fintech and the role of digital banking when our local community has to deal with banking matters without leaving their home.”

“With fintech, manual process such as account opening and risk assessment can be performed online, reducing waiting time at a physical branch. Therefore, during the epidemic, our customers can easily use our services without leaving home.”

The verdict

The mobile phone apps of ZA Bank is easy to use, and it can allow customers to do banking transactions around the clock. This beats traditional bank branches with fixed operating hours and sometimes long queues.

In comparison with the mobile phone apps or internet banking services provided by traditional banks, however, the online virtual banks did not have much advantage. To improve, virtual banks will need to offer credit cards or ATM cards

“Based on our recent digital banking survey, over half of the respondents in Hong Kong are interested in becoming a virtual bank customer. Customers who experience pain points in conventional banks are up to twice as likely to sign up with virtual banks,” PWC’s Ng said.