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Hong Kong gives green light to more virtual banks

The Hong Kong Monetary Authority (HKMA) has issued a total of eight licences this month for virtual banks conducting business through digital channels rather than physical branches to establish operations.

Seven of the eight new licences go to virtual banks backed by internet companies from the Chinese mainland.

In March this year, the HKMA issued three virtual banking licences to Standard Chartered, Bank of China Hong Kong, and Chinese online insurance firm ZhongAn, followed in April by fintech WeLab which operates local lending platform WeLend and also one of China’s leading mobile lending platforms Wolaidai.

This month, the HKMA followed up with four more new licences, granted to Ping An Insurance’s subsidiary Ping An OneConnect, Ant Financial Services’ unit Ant SME Services, smartphone manufacturer Xiaomi and AMTD Group’s joint venture Insight Fintech HK, and the Infinium consortium that includes Tencent Holdings..

According to their business plans, the four newly-licenced virtual banks intend to launch their services over the next six to nine months.

Under attack?

The HKMA’s chief executive, Norman Chan, said, “We are pleased to grant four more virtual banking licences. The HKMA is now working closely with the eight virtual bank licensees to prepare for the launch of their business operations in accordance with their plans.

“The launch of virtual banks in Hong Kong, which is a key component of the Smart Banking Initiatives, will certainly facilitate financial innovation, enhanced customer experience and financial inclusion.”

The new licences have sparked local press reports suggesting that Hong Kong’s banking sector is under attack from China’s major tech companies. Critics of the tendering process have complained that high minimum capital levels act as a barrier to smaller but potentially innovative players.

However, ratings agency Moody’s has downplayed fears that Hong Kong’s incumbent banks stand to lose much of their business. It believes they will fend off much of the competition as they benefit from ‘sticky’ deposits that are less vulnerable to competition from new entrants.

The HKMA intends to closely monitor the operations of virtual banks once they commence business, including customers’ reactions to the new modes of delivering financial services as well as any impact the virtual banks have on the banking sector in general. The Authroity expects to be able to conduct a comprehensive assessment of the situation about one year after the first virtual bank has launched its service.

With the approval of the latest banking licences, the number of licensed banks in Hong Kong increases to 160.

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