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Bloomberg
Hong Kong’s traditional banks are set to face one of their biggest challenges yet: a new breed of financial technology firms estimated to snare as much as 30 percent of their revenue.
The Hong Kong Monetary Authority has granted three virtual bank licenses and is processing five more, Deputy Chief Executive Arthur Yuen said in a briefing on Wednesday. Firms that got the permits have partnered with Standard Chartered Plc, BOC Hong Kong Holdings Ltd. and ZhongAn Online P&C Insurance Co. and they intend to begin operating within nine months, Yuen said.
The city is playing catch up with regional economies, notably China and India, by allowing fintech to shake up retail banking. A reliance on cash and strong household savings had yielded high profitability for a clutch of lenders and kept the industry concentrated. That could see the sector vulnerable to disruption as competition gets fiercer.“This will help foster fintech development in Hong Kong and promote financial inclusion,†the Hong Kong Association of Banks said in a statement. “The industry can leverage this opportunity to develop new business models.â€
Virtual banks are similar to traditional retail banking services in that they will be able to accept deposits and give out loans. They aren’t expected to set up physical branches. Analysts at Citigroup Inc. estimate around 10 percent of existing banks’ revenue is at risk over the next decade.
Most at risk are HSBC Holdings Plc, Standard Chartered, Hang Seng Bank Ltd. and BOC Hong Kong Holdings, which account for 66 percent of the retail loan market and 77 percent of mortgages, according to Goldman Sachs Group Inc. About $15 billion, which is
30 percent of the city’s total banking revenue, is up for grabs, Goldman’s analysts, led by Gurpreet Singh Sahi, estimated in September.
The payment space would be the first battle ground between banks and technology firms in the city, the Goldman report said. Hong Kong’s value of cash transactions accounted for about 17 percent of GDP in 2016, leaving the city behind only Japan among major eco-nomies, according to a report published by the Bank for International Settlements last year.