Banks in Hong Kong have been preparing for a few years for challenges from fintech, particularly the new wave of virtual banks. Now those competitors are here, but COVID-19 has also forced banks to hasten their own digital restructuring.
Let the contest begin.
“Two years ago I thought the virtual banks would come in with great technology, a great experience, pricing – but that incumbents will have reacted,” said Sebastian Parades, Hong Kong CEO at DBS. “We’ve seen that. It will be very busy and very bloody.”
The arrival of digital-only banks and other fintechs has already impacted DBS’s strategic thinking. On the one hand, it has planned for a new foray into banking for small and medium sized enterprises (SMEs), with a new digital service ready to launch next month.
On the other hand, DBS has decided to stick to areas where it’s competitive, such as wealth management. “We will avoid mass retail digital banking,” Parades said.
He spoke at a conference (with actual live people) organized by the Hong Kong Institute of Bankers, an industry association whose annual event made room for virtual banks and fintechs.
Eddie Yue, CEO of Hong Kong Monetary Authority, named fintech as one of three big transformations impacting the city’s banking industry, along with cross-border opportunities with mainland China and sustainable finance.
That is beating our expectations in a very big wayEddie Yue, HKMA
He noted that COVID-19 has given impetus to mobile banking and electronic payment services: in 2020, 80% of cash payouts for money transfers and bill payments have been made electronically. “That is beating our expectations in a very big way,” Yue said.
He also reported that the Faster Payments System introduced in 2018 now has 6 million people registered to use it, out of a population of 7.5 million. This year it handles 400,000 transactions a day, more than double the amount in all of 2019.
Not just retail
This is true of wholesale business as well, with investment banking roadshows now done virtually.
Angel Ng, Hong Kong and Macau CEO at Citibank, says these reflect not just that banks have invested in tech, but that customers have finally adopted these solutions. “We launched internet banking 22 years ago,” she said. It’s taken the bank 20 years to get 30% of its retail customers in Hong Kong to transact digitally – and now the figure is over 80%, with COVID one driver.
And it’s true of private banking, that reserve for the ultra rich that was believed (by its bankers, anyway) to be impervious to the bourgeois uses of digital engagement. A recent client survey by UBS revealed 63% of its wealthy clients want to be updated via WhatsApp or WeChat, says Amy Lo, head and CEO of UBS Hong Kong.
The battle is not over pricingAngel Ng, Citibank
Clients are increasingly going online to trade stocks and interact with their relationship managers. In the past 12 months, the number of ebanking transactions quadrupled. “Those are impressive numbers,” Lo said.
Of course, private banking is about more than investments and research: there’s the entire business of family and business services, estate planning, philanthropy, art collections and so on. But digital is now firmly part of the deal. “We’re high touch, high tech,” Lo said.
Hugo Leung, CEO for Hong Kong at BNP Paribas and CEO of BNP Paribas Securities Asia, says digital has become important to corporate and investment banking. Trade finance and cash management are being automated, with banks focusing on e-commerce experiences for customers and security for their data, as well as execution of transactions.
On the I-B side, while conference tech has made it easier to hold virtual roadshows, Leung says the focus is on digitalizing research. “This is about improving client education,” he said.
The digital tsunami has its challenges. Remote working creates managerial and security issues. Banks need to harness data to surveille their employees without hurting morale or performance; the same tools can be used for decisions about credit or detecting fraud.
At the same time, other challenges to banks – especially low interest rates, which make it hard to profit from holding deposit money – is forcing banks to double down on tech to make operations more efficient.
As virtual banks launch – with some offering competitive deposit rates – banks say they are not going to get into a price war. “The battle is not over pricing,” Citi’s Ng said. “Customers are willing to pay a premium for a better experience.”
The virtual banks are launching with new customer propositions at their core, and a lean, cloud-enabled tech stack to deliver them. Open banking norms are redefining ecosystems and the power of data. The battle is afoot.