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How ZA Bank is doing virtual wealth and insurance

The virtual bank is taking a supermarket approach to introducing wealth-management services.



Calvin Ng, ZA Bank

ZA Bank, one of Hong Kong’s eight virtual banks, has launched a wealth-management proposition. This follows an insurance offering from last year that rounds out the bank’s ambition to be a full-service institution, providing fee-generating products that complement lending, savings and payments.

“We aspire to become peoples’ primary bank, so we must provide a one-stop shop and meet all of a consumer’s financial needs,” said Calvin Ng, alternative CEO and co-head of retail banking (pictured).

For purely digital banks, however, moving into insurance and wealth creates challenges, because there is no branch network, relationship manager, or agent to sell what can be complex products.

Selling virtual insurance

Insurance was an easier fit for ZA Bank, given its parent is Zhong An Online P&C Insurance, the Shanghai-based insurtech pioneer. Its subsidiary, ZA Insure, is one of four virtual insurers licensed in Hong Kong.

“It’s harder to be all-digital in insurance compared to banking,” Ng said. This has shaped what ZA Bank does.

ZA Bank sells insurance products via the traditional bancassurance model. ZA Insure is its partner for virtual insurance products. It also sells more traditional policies provided by Generali.

First, it digitized the application and processing of insurance products, so bank customers can have a policy in force within five minutes of applying.

Second, while Zhong An in China is a general insurer, ZA Bank is offering term life insurance policies of up to HK$10 million ($1.3 million) cover.

This was partly to keep things simple, but also to focus on protection rather than investment-linked policies, which is what agents at incumbent insurers like to sell. Hong Kongers buy a lot of insurance products, but their protection level is low, Ng says.

Digital finance makes it easier to sell straightforward protection policies, along with more specific healthcare policies. For example, a traditional insurer will sell broad critical-illness coverage, with broad, complex, and expensive policies. ZA Bank’s shelf offers policies aimed at very specific conditions, such as cancer, or heart attacks.

Complex policies

This makes policies more transparent and cheaper, which makes them easier to sell on a digital platform without agents. ZA Bank’s heart attack and stroke premiums are as low as HK$2 a year, depending on the age of the applicant.

The bank does not want to limit itself to virtual insurance. In April, it partnered with Generali to sell policies that would normally require face-to-face interaction with an agent, such as annuities and full-suite critical illness.

ZA Bank digitizes the applications and keeps the client relationship within its app. “We are not just passing leads to Generali,” Ng said. The bank’s app manages the relationship with agent reservations, policy alerts, and post-meeting notifications. It also prompts users to authorize the payment of premiums from their ZA Bank accounts.

Adding investments

With insurance embedded within the bank’s app, the time came to add investments.

Theo Lok, director of wealth management at ZA Bank, says the bank opted for a supermarket approach: put lots of third-party products on its shelf and let customers pick and choose.

This decision reflected regulation. The Hong Kong Securities and Futures Commission requires distributors of funds that offer advice or recommendations to carry out a “’suitability” test of each customer – a process that involves in-person interviews.

Therefore ZA Bank decided not to provide recommendations or advice. Nor has it built a robo-advisor or portfolio-construction tools.

Instead, it leaves it to customers to select from a range of actively managed funds. Lok says the app will ping customers if it feels they are selecting a product that looks too risky, but customers can proceed as long as they acknowledge the message.

Its third-party fund managers include AllianceBernstein, Franklin Templeton, and Invesco. The products range from money-market funds to bonds, balanced funds, and equity thematic funds such as exposure to tech, China, healthcare, or sustainability.

Avoiding advice

Lok says the bank is looking at robo tech to see if it will boost the business. “It’s still new in Hong Kong, and traditional banks using robo-advisors have had a low response rate,” he said.

But any robo is unlikely to work for ZA Bank if its purpose is to make recommendations – at least so long as the bank does not have a license to deal in securities.

“We’re not anti-robo or advisory,” Ng said. “But the path we took to wealth management was simpler. Digital banking is only two and a half years old. We’re learning. Our customers are learning. There will be iterations, upgrades, user feedback. There’s a lot to do.”

Making the business work

Will the insurance and investment businesses make money for ZA Bank? The bank now claims about 500,000 customers, a big number in a city of 7 million people. But virtual banks are not yet primary banks, where people hold the bulk of their savings. In other markets, pure digital banks have tended to struggle to achieve the scale needed to break even.

Ng says ZA Bank’s advantage is that it doesn’t employ any relationship managers, so its costs are low. In order to win customers, for now, the bank is not charging a front-end load. (It is typical in Hong Kong for banks to charge a customer 3-to-5 percent of the investment up front, on top of an annual management fee.)

ZA Bank may decide to charge an front-end load in the future, but for now it wants to underprice incumbent consumer banks.

It is also charging the same management fee for a given product. Incumbents will usually lower their fees for wealthier clients who invest larger sums, but at this stage, ZA Bank sees a benefit in being perceived as “fair” to all of its customers.

At the same time, the bank is relying on its app to show users they can access a range of investment products. For now, the goal is engagement and traffic on the app – through a variety of products, and more consumer-tech based “engagements” such as activities, rewards and lucky draws. Traffic should lead to more transactions.

ZA Bank is not trying to compete on product differentiation. It’s just trying to make the user experience better, while keeping things simple and cost-effective.

Ng said it was too early for the bank to discuss specifics around customer-acquisition-cost or the operating costs relative to assets under management. “For the first few years, we need to invest in systems development,” he said. “We are building scalable businesses.”

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