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ZA Bank’s path to profits hinges on iteration

Calvin Ng, co-CEO, describes the steady grind of continuous product improvement that delivers revenues.

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Calvin Ng and friend, ZA Bank

‘Innovation’ sounds a lot more glamorous than ‘iteration’, but it’s the latter that describes the way ZA Bank is building its way towards becoming a profitable and sustainable virtual bank.

The Hong Kong ‘licensed digital bank’, as the Hong Kong Monetary Authority now characterizes the eight virtual banks in the territory, and its peers are suffering from a problem of building a healthy deposit base.

As DigFin outlined in an introduction to this series on Hong Kong virtual banks, after four years of business, deposit acquisition has stalled, average deposit sizes are about half their peak, and loan-to-deposit ratios are dangerously low.

Slowing growth

“It’s true that virtual banks need growth,” said Calvin Ng, co-CEO at ZA Bank, although he says ZA Bank’s own deposit base continues to outpace that of other virtual banks.

Consultancy Quinlan & Associates confirms that, noting ZA Bank’s 700,000 customer accounts (as of mid 2023) far outstripped those of its peers.

“It’s not a surprise that growth rates slow, as early adopters give way to a mass customer base,” Ng said. “We’re seeing deeper engagement among our users, while non-users are becoming harder to convert.”

His answer is to gradually win customers’ trust by constantly improving the product and the experience.

The grind of iteration

For example, most banks now have an app in which users can make a payment. ZA’s includes a social-media messaging-app like conversational interface. Users can see an entire transaction history while using emojis or text to chat.

“We’re not replacing messaging apps,” Ng said. “We’re bringing that kind of convenience.”

Ng’s not concerned about incumbent banks quickly mimicking ZA’s advances, because to do so would require the kind of weekly or monthly updates that characterizes the business’s culture. 

“Banks aren’t changing their hygiene products,” Ng said. “They do big revamps, not continuous improvement.” By the time incumbents get around to a big update of their services, nimble virtual banks will already be working on other products or ideas. “We have a new release every three weeks, big or small,” Ng added. 

ZA Bank’s wager is that by constantly delivering, it will gradually win the trust of its users, who will gradually increase their deposits and use the bank for more things.

Back to front

That goes for behind-the-scenes functionality as much as a new payment or brokerage product.

“We’ve invested a lot in cybersecurity,” Ng said. “It’s not something we advertise. But trust depends on reliability, availability and resilience.” For example, in 2023 ZA Bank added a second cloud provider, and it runs duplicate environments for everything.

“The only solution to avoiding outages is to have a 24/7 alternative,” Ng said, noting this isn’t a backup but a parallel bank. “A user outage would hurt user confidence in all types of digital banking. This is our backbone.”



Reliability plus a focus on customer service is how ZA Bank intends to gradually win over more users. “Banking is a commodity,” Ng said. “It doesn’t engender passions. It just has to work well. If we do something we think is great, it’s hard to impress users, but if we make a mistake, people react strongly.”

There’s another benefit to this approach: by building an agile tech stack, virtual banks can begin to offer products more cheaply than incumbents.

For example, ZA Bank has a wealth management component. It may not be as fleshed out as a big bank’s, but it doesn’t need to charge front-end loads or other forms of commission, because it doesn’t have relationship managers. For example, ZA Bank currently charges no fee for subscribing to a money-market fund, and only 0.5 percent for access to other actively managed funds.

Grand experiment

This slow-and-steady iterative path doesn’t lead to sudden jumps in revenue. Ng says the bank has narrowed its losses, increased revenues, and controlled its costs. But it doesn’t yet have a timeline for breaking even.

But the bank isn’t seeking new capital. Its last funding round was a Series A in 2021. The focus now is on adding more products and enjoying the boost in rising interest rates that makes it attractive to hold deposits.

This doesn’t mean the road is smooth. The point to building a deposit base is to have the firepower to lend. Ng says ZA Bank has been conservative with its loan book. It is diversifying from personal loans into secured loans and loans to small businesses. But the ratio of loans to deposits remains low because the cost of funding remains high and the bank is careful in managing its liquidity. 

Growing deposits is critical to expanding loans, but ZA Bank is now past the point of attacting users with high interest rates. It’s relying more on trying new ways to service users, such as by offering an account that provides budgeting and other customized personal-finance services on top of savings. 

“It’s experimental,” Ng said. “We can’t rely on in pricing to grow deposits. There’s no other way to compete than keeping the focus on the customer.”

ZA Bank is also eager to support blockchain and tokenization businesses, and is thinking about how to offer tokenized deposits. “It’s not about a product, but what the technology allows,” Ng said. “We don’t need a 150-year heritage to compete in this field.”

This series includes our introduction and profiles of PAObank, Mox Bank and WeLab Bank.

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