The paper features insights from interviews with all eight Hong Kong virtual banks, as well as case studies of Revolut and Tinkoff Bank.
Strategy consultancy Quinlan & Associates, supported by FTAHK (FinTech Association of Hong Kong), has published a new report exploring the outlook for Hong Kong’s virtual bank ecosystem, and the challenges the institutions will face in the years ahead.
In 2020, eight virtual banks launched in Hong Kong, each competing for a piece of the city’s HKD 373.9 billion annual retail, commercial, and corporate banking revenue pool, which is currently being dominated by four leading banks with a combined 62% and 54% market share of deposits and lending, respectively.
“While most of the virtual banks have deployed innovative forms of technology across the customer value chain, we see a number of key challenges to their ability to disrupt brick-and-mortar incumbents, including a trust deficit felt by customers, profitability concerns, cybersecurity and data privacy risks, talent management shortfalls, and heightened competition from both the new market entrants and incumbents,” the paper says.
To succeed, Hong Kong virtual banks will need to put in place a clear strategy to “win over customer hearts and minds”, including to create maximum brand impact through well-targeted marketing campaigns, provide unique products and services, and deliver an unrivalled customer experience.
The paper suggests that a fee-based income model that leverages customer data across various touchpoints is critical, both to enhance product personalisation and drive cross-selling opportunities. The “data advantage” held by virtual banks can be further leveraged through the formation of third-party partnerships with financial and non-financial service providers.
In the longer term, the Greater Bay Area may also open up opportunities for the virtual banks to tap into China’s growing wealth pool, however accessibility will depend on the evolution of the regulatory landscape between Hong Kong and Mainland China.
The ability to appeal to customers on the front end, address data privacy and cybersecurity issues, and adopt an appropriate cloud strategy will also be important factors that will contribute to the success of virtual banks, the paper says.
Featured in the paper are insights from interviews with all eight Hong Kong virtual banks, as well as case studies of UK-headquartered Revolut and Moscow-based Tinkoff Bank.
The full paper is available here.