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HKMA continues push for digital and online banking

According to a recent report, FinTech unicorn was awarded Hong Kong’s fourth online-only banking licence on Wednesday, the Hong Kong Monetary Authority said in a statement.

The HKMA has now given the fintech company access to a lucrative retail banking market in the Asian financial hub.

The unicorn is a fintech company that offers mobile lending services primarily in Hong Kong and mainland China. The HKMA had previously granted virtual banking licences to joint ventures as well as to a subsidiary the international arm of a Chinese online insurer.

Shaking up the banking sector

The introduction of online-only banking has the potential to be the biggest shake-up in years in the city’s retail banking sector dominated by old-guard lenders and a slew of Chinese banks. Many consumers are unhappy with the current options. However, the entrenched position of current retail banks is expected to be a major challenge for the new online-only entrants.

In a statement announcing the FinTech firm’s licence, the HKMA noted that the introduction of virtual banks in Hong Kong is a key pillar supporting Hong Kong’s entry into the smart banking era. In addition, virtual banks will not only help drive FinTech and innovation but also bring about brand-new customer experiences and further promote financial inclusion in Hong Kong.

The HKMA said the unicorn intended to launch its services within six to nine months. Some 33 virtual banking applications were submitted by the deadline of 31 August last year. The HKMA short-listed eight and said on Wednesday it was making good progress on the remaining four applications.

Besides individuals, small firms, which have long complained of difficulties in opening bank accounts in Hong Kong, will also be targeted by the new online lenders, with small loans, foreign exchange and payment services among those on offer.

Behind the licences

According to an HKSAR Government release, the HKMA noted that it welcomed the establishment of virtual banks in Hong Kong. The development of virtual banks will promote the application of financial technology and innovation in Hong Kong and offer a new kind of customer experience.

In addition, virtual banks can help promote financial inclusion as they normally target the retail segment, including the small and medium-sized enterprises (SMEs).

For a company applying to set up a virtual bank (virtual bank applicant), fulfilment of the minimum criteria essentially means that it must have substance and cannot simply be a “concept”, taking advantage of the popularity of new technology.

The applicant must have a concrete and credible business plan setting out how it intends to conduct its business and how it proposes to comply with the authorization criteria on an ongoing basis.

In addition to technology and related risks, a virtual bank must attach equal importance to the management of credit, liquidity and interest rate risks. In addition, the HKMA must be satisfied that the controllers, directors and chief executives of the applicant are fit and proper persons.

According to a report from July 2018, a consultancy firm stated in a report that the introduction of virtual banks to Hong Kong will ultimately boost overall competitiveness.

Technology developed by financial technology companies can lower costs and help consumers without credit history get loans they couldn’t obtain from traditional banks, it said.

Moreover, this could significantly boost financial inclusion and encourage traditional banks to further develop their own platforms, thereby raising the bar across the whole industry.

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