Virtual Banking: The Future of the Hong Kong Banking Industry?
The Hong Kong Monetary Authority will issue virtual banking licenses to the first batch of applicants within 2019. There is no physical branches for virtual banking, all services from account opening to application of any banking services are carried out through online or mobile phones. Many banks also provide online banking services currently, allowing users to handle daily account transactions through mobile phones and Internet. However, some services still require to go to banks in person. Whereas virtual bank users can only handle all banking services online. Though there are no physical branches, virtual banks are still subject to the regulations of the Hong Kong Monetary Authority and relevant banking laws.
According to the Hong Kong Monetary Authority by the end of 2016, there are 1,151 bank branches and 3,315 ATMs in Hong Kong. Hong Kong is an international finance centre. The bank branches cover all parts of Hong Kong. Users can enjoy banking services conveniently and most of the bank license holders also have online banking services. Many financial institutions, such as local banks, have also mentioned publicly that they wont pursuit a virtual banking license yet. The banking industry is observing the impact of virtual banking to the market. The 」 Guideline on Authorization of Virtual Banks 」 issued by the Hong Kong Monetary Authority in February 2018 clearly states that applicants for virtual banking licenses must meet the minimum capital requirement of HK$300 million, same as the existing banking license holders. Although virtual banks are not require to open a physical bank branch and can cut cost on manpower and rent, electronification can help reduce costs on physical branches, but network security and platform investment are not necessarily lower than the original cost, but at this stage, the approval process of the virtual banking licence is still undergoing. The regulations on technological risk and the number of licenses are still subject to announcement by the authorities. The market awaits further information for the next move.
Hong Kong’s banking business model combines financial technology to inject new impetus into the development of the banking industry. The digitalization of the financial industry is accelerating helping management efficiency with a more streamlined and convenient process for users. Uploading the physical banking services to the network, financial institutions can accumulate a more accurate user data base for financial institutions, the user can also experience a more convenient banking services. Apart from efficiency, the users concentrate even more on network safety to safeguard their assets, the authorities need to establish a set of regulations to balance between the development of virtual banking and the supervision of the network security.