ZA Bank, the first virtual bank licensed in Hong Kong, is seeking licenses from the Securities and Futures Commission to distribute wealth-management products, says Rockson Hsu, CEO.
The application has been in progress for some time, but he would not specify when ZA Bank submitted, or for which licenses.
Typically this would involve Type 1 and Type 4 licenses, to deal in securities and to advise on securities. A Type 9 license would allow ZA Bank to manage assets itself.
Hsu told DigFin that the bank is considering manufacturing its own products. This is not the same thing as managing the underlying assets, but he wants to maintain control over the product, as befits a technology-based bank.
Virtual banks have been talking about wealth management since last year, and WeLab Bank has established a partnership with Allianz Global Investors. Hsu says he expects other VBs are also applying for securities licenses. Local press reports say Mox Bank and livi are also pursuing these.
So this is not exactly new, or news. But it does represent the first time a virtual bank in Hong Kong has announced its licensing bid, and raises the question of what distributing investment products without relationship managers or branches will look like.
“Technology is not just a tool,” Hsu said, speaking at a conference organized by the Hong Kong Investment Funds Association. “It changes the customer journey.”
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For example, a traditional bank may need several hours to open an account for a new customer. ZA Bank launched last year with this down to a few minutes, while still meeting the same compliance demands. Now it’s getting these to seconds, as it uses customer feedback to improve its operations.
“Technology enables us to do this but it’s still up to us to change the underlying process,” Hsu said. “The mobile phone is our medium, and a lot of thinking goes behind each click.”
He says ZA Bank will look to distribute investment products along the same thinking: figure out what the customer wants, and build the right product delivered via the best experience. To start with these will be mutual funds, which are easiest to get the nod from the SFC.
The bank will distribute investment products in the same manner that it sells loans and deposits – remotely, via mobile, without customer reps. It does all its selling via social media.
ZA Bank has also recently launched insurance products manufactured by its shareholder, Zhong An, so wealth management is the final big capability the bank needs to fill, Hsu said.
Versus incumbent wealth managers
Hsu acknowledges the need for a bank to earn trust to succeed. ZA Bank and the other VBs are taking on incumbent banks with deeply entrenched brands and strong levels of trust.
Hsu points to user ratings for the bank’s app as one way to measure trust. Another is to gradually improve offerings as the bank accumulates user data. These features can be replicated by deeper-pocketed incumbents. It’s a question of whether all the incumbents can pool, analyze, and respond to customer data, within a day if not sooner.
Big banks have lots of customers, and lots of data, notes Sami Abouzahr, HSBC’s head of customer wealth, speaking at the HKIFA event. But they are constrained by the costs of maintaining bank branches and relying on relationship managers, who can only field a limited number of clients.
Banks are using machine learning and other tools to become more clever at utilizing their data, delivering tailored market insights and investment scenarios. The holy grail is to use tech to scale RMs, so they become a potent part of the service rather than a cost. “If we can combine digital and human capabilities, our wealth management offering can be broad-based, personalized, and scalable,” Abouzahr said.
They aren’t there yet, however, so upstarts like ZA Bank have a fighting chance.
Ken Shih, head of sales and marketing at robo-advisor Aqumon, says virtual banks can combine features such as budgeting apps and transparency around product features such as fees to give investors confidence. “Rockson’s got a real advantage,” he said at the HKIFA event.
The biggest question for VBs that win SFC securities licenses will be how they partner. Hsu told DigFin he wants to control the product process. But he would not comment on whether or how he would partner with either asset-management companies managing these funds, or the likes of an Aqumon – a virtual investment business that is also vying for retail customers using mobile devices.
ZA Bank has over 300,000 customers after launching early last year. Its early launch means it has the lion’s share of virtual bank accounts in Hong Kong, which total about 580,000, Hsu says; ZA Bank and Mox together claim about 70 percent of the market.