Virtual bank competition in Hong Kong is off to a slow start as growth prospects are still hindered by economic uncertainties, says the Fitch rating agency.
The Hong Kong Monetary Authority granted eight virtual bank licences in 2019, and most only began operations in recent months as a result of launch delays.
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“This is unsurprising as we believe the new entrants are likely to exercise more prudence under a worsening economic outlook from the coronavirus and trade tensions,” Fitch says.
Many of the virtual banks offer much more attractive deposit rates than those offered by the incumbents.
The promotions, usually up to three months, look attractive in the low-interest-rate environment, though there is usually a cap per customer under these promotions.
A distinct advantage
Deposit rates are offered as high as 5% per annum, and one virtual bank is granting interest-free loans of up to HKD100,000. Other campaigns include referral fees and cash rebates of up to 5% on spending to founding merchants.
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By GlobalDataThe distinct advantages of virtual banks are their abilities to cross-sell and bundle customers using other non-bank shareholders’ platforms to enhance overall customer loyalty and brand recognition.
Innovative and differentiated products such as numberless or personalised credit cards have been launched, which could be an attraction especially to the younger population.
Virtual banks are a prime target
“We see this segment as a prime target, as it is under-served by traditional banks which tend to focus more on higher net-worth customers,” Fitch says.
The traditional way of transacting through branches is poised to change, as customers grow more accustomed to digital platforms.
“We expect the incumbents will continue to boost their fintech capabilities, so to keep pace with the competition,” Fitch says.
