With digital banking licences to be issued to six companies in the coming weeks, banking giants in Hong Kong are bracing for competition from top technology and payments companies from the mainland.

Authorities in Hong Kong are preparing to issue digital banking licences in the coming weeks to six companies: Ant Financial, internet gaming group Tencent’s payment business Tenpay, consumer electronics company Xiaomi, Standard Chartered, Hong Kong Telecom and online insurance company ZhongAn with Citic Bank as its partner, the «Financial Times» (FT) reported, citing unnamed sources.

Hong Kong currently trails its regional and global peers in terms of virtual and digital banking operations. The Hong Kong Monetary Authority (HKMA), the city's central bank and banking regulator, had previously said it would introduce initiative to bring Hong Kong into a new era of smart banking.

In regulatory terms, the licences will allow these companies to compete with traditional banks on a level playing field. It will also force the autonomous territory's financial sector to innovate and provide a better service to the city’s consumers.

Retail banking in Hong Kong is currently dominated by a handful of large players. The top four banks in Hong Kong – HSBC, Bank of China, Hang Seng Bank, and Standard Chartered – account for 66 percent of all retail banking loans and even more for credit cards and retail mortgage loans in the former British overseas territory, Financial Times said, quoting figures from Goldman Sachs.

Customer Service, Low Overheads

A «virtual bank» is defined as a bank which delivers retail banking services primarily, if not entirely, through the internet or other forms of electronic channels instead of physical branches.

The entrance of such banks, which promise easier online baking and access to a broader range of digital products, is giving traditional banking giants in Hong Kong cause for concern – the lack of competition has resulted in far lower customer satisfaction levels compared to most other developed banking markets, FT said.

Common gripes that the new entrants might be able to solve include slow, clunky online banking, a lack of clarity about fees, the difficulty of opening accounts and generally poor customer service. 

Unlike traditional banks, the new entrants will be able to start from scratch and not need to worry about upgrading costly legacy IT systems and infrastructure. The lack of physical branches and front-facing staff should also translate to cost savings for customers. 

Huge Interest

finews.asia previously reported that virtual banking in Hong Kong has received huge interest since HKMA announced its intention to encourage virtual banking, with enquiries and indications of interests from over 50 companies including applications from global entities.

HKMA eventually received 29 virtual bank applications before the August 31 deadline for the first round of applications, the «South China Morning Post» reported.