Adoption of Virtual Banks and Insurers

Adoption of Virtual Banks and Insurers 18 Overview of Virtual Banks and Insurers Virtual banks In September 2017, the HKMA decided to introduce virtual banking licenses for non-traditional financial services providers to enter the Hong Kong banking sector, without the requirement of physical branches. 4 Virtual banks primarily engage in retail business for individuals and SMEs. They do not impose any minimum account balance requirements or low balance fee to their customers. According to the HKMA, virtual banks are subject to the same set of supervisory requirements applicable to existing licensed banks. Some of the requirements are adapted to suit the business models of virtual banks. The HKMA has received over 30 applications and has granted eight licenses as of 15 August 2020 (see Exhibit 1 for the list of eight licensed virtual banks). ZA Bank was the first to start its operations in March 2020, offering individual and SME banking services. Thereafter, Airstar, PAOB, WeLab Bank and Livi rolled out their businesses from June to August 2020, respectively. Airstar, WeLab Bank and Livi provide personal banking, while PAOB focuses on SMEs. As of mid-2020, other virtual banks have started their soft launch and promotion. Three virtual banks have traditional banks as major shareholders. Digital banking developed by traditional banks also aims to provide fintech innovations delivered on user-friendly and automated online platforms. The term, digital banking, broadly refers to online/digital banking operated by incumbents as well as virtual banks. Two of the largest retail banks have launched their new digital banking mobile app in 2020, with more user-friendly Know Your Client (KYC) onboarding and authentication processes. Similar to virtual banks, digital banks’ customers can open new accounts without physically attending bank branches. Different biometric authentication methods are used for the verification of individual and SME bank account holders. 4 Hong Kong Monetary Authority, Virtual Banks, https://www.hkma.gov.hk/eng/key-functions/banking/banking- regulatory-and-supervisory-regime/virtual-banks/