Hong Kong’s financial regulator urged to keep an open mind on fintech start-ups as city hands out virtual bank licences

Financial companies are urging the Hong Kong Monetary Authority to be more open-minded in giving new virtual bank licences as it would become difficult to attract international players to set up in the city.

One such company is Tencent-backed Airwallex, an Australian fintech that only last month acquired unicorn status but failed to make the final shortlist of eight. The company moved its headquarters from Melbourne to Hong Kong last year after the HKMA announced plans to issue virtual banking licences to promote fintech, offer customers a new kind of experience and improve the city’s financial competitiveness. Unicorns are companies with a valuation of at least US$1 billion.

“We are disappointed with the HKMA’s decision,” said Jack Zhang, co-founder and chief executive of Airwallex. “The HKMA’s licence requirements are too restrictive which could affect our ability to offer new banking products and services.”

He said that if the HKMA’s licensing regime remains inflexible “we might consider moving our core operations to other markets which are more friendly to new start-ups such as the US or UK”.

In November, Airwallex UK, its British unit received the “Authorised Electronic Money Institution” licence from the UK regulator Financial Conduct Authority, which is similar to the Stored Value Facilities (SVF) licence issued by the HKMA.

Zhang said the licence allows it to offer card and payment services in Britain and gives it access to 50 European markets until, of course, Brexit takes effect.

The three and half year old start-up says its technology platform can help large international companies and SMEs open overseas bank accounts, manage cross-border revenue and financing with ease and at a much cheaper rate.

Zhang said that the company is now in talks with the HKMA for an SVF licence so that it can offer certain bank card services to customers. He, however, is worried that this too may prove difficult as the HKMA has not issued new SVF licences in the last two years.

“The SVF licence will only enable us to offer limited banking services, but we are willing to compromise. We might also explore mergers and acquisitions opportunities to buy a bank to access the banking sector in Hong Kong,” Zhang said.

An HKMA spokeswoman said the regulator continues to process SVF licences but could not comment on individual applications.

“Applicants who did not manage to obtain a virtual bank licence will not be automatically considered for an SVF licence,” she said.

The HKMA last month issued three virtual bank licences that allows companies to offer a full range of banking services online without the need for any physical branches.

However, there was just one new face among the licensees – a joint venture between online insurer Zhong An Online and SinoLink Group. The other two were awarded to joint ventures led by Standard Chartered and Bank of China (Hong Kong).

There are still five candidates in the final shortlist, but Airwallex and others including Interactive Brokers have been told that they have not made the cut.

The Greenwich, Connecticut-based online brokerage firm, one of the largest electronic stock and forex trading firms in the US and Hong Kong, said it too was looking for banking licences outside Hong Kong.

“[Since] the HKMA said they won’t consider new offerings of virtual bank licence for a year after the current ones are operating, we may consider opportunities in other markets before we will look again at Hong Kong,” said David Friedland, managing director for Asia-Pacific at Interactive Brokers.

He added that the company’s operations in Hong Kong will not be affected because of the setback.

Jasper Yip, a financial services principal at consultancy Oliver Wyman, said that failed virtual bank candidates could grow in Hong Kong through other licences or partnerships.

“Overseas experience suggests that the development of a customer-needed app could be even more important than the licence itself from the perspective of developing a meaningful customer base.”

He gave the example of Revolut, a UK fintech that has amassed a huge customer base of 4.5 million offering a range of digital banking services through its mobile app despite not acquiring a UK banking licence initially.

“Experience in the UK suggests that many digital banks like Monzo, Starling and Revolut have become ‘companion banks’ forming partnerships with traditional banks providing better technology so as to provide better services and transaction experience for customers,” Yip said.