Popular in Europe and other developed economies, virtual banks are about to get real for Hong Kong as the Hong Kong Monetary Authority published proposed guidelines on the authorization of virtual banks on February 6 for public consultation.
The consultation runs from February 2 to March 15 and will be followed by a issuance of revised guidelines in May. But companies can already apply and both both financial and non-financial firms, such as tech companies, can begin the application process.
Emil Chan, Chairman of FinTech Committee of Smart City Consortium told the Harbour Times that this is an important move. “In the past, only subsidiaries of banks were allowed to obtain virtual bank licenses. [This] restriction is lifted now,” he said.
Hong Kong-based e-wallet firm TNG told Harbour Times that they are considering applying. WeBank, under China’s tech giant Tencent, and Ping An Technology are also said to have shown interest according to local news reports.
Chan welcomed the move and called it a win-win for everyone. “Everyone benefits from it, including the underprivileged group that is not the preferred clients of conventional banks. General clients also have more choices, and the banks can urge the regulator to open up the market further to enhance their competitiveness,” he said.
“Fintech companies can also use this to enter the so-called Asian financial centre to serve local and international markets,” he added, saying the initiative can give everyone an equal access to banking.
Those who are keen on setting up a virtual bank in Hong Kong will have to meet a minimum level of share capital of HK$300 million – a requirement not considered harsh, said Arthur Yuen, deputy chief executive of the city’s de facto central bank. The requirements is the same for regular banks.
Yuen said in a media briefing that virtual banking has been proven successful overseas and SMEs could gain access to better banking services and lending.
The guideline suggests that virtual banks should operate as a locally incorporated bank catering to the SMEs and mainly engage in retail businesses.
Yuen added that basic principles such as concrete and credible business plans, risk management, fair treatment to customers and adequate capital are still applicable, same as those to the conventional banks. Predatory pricing is strictly prohibited.
In order to uphold the principle of financial inclusion, the virtual banks may not impose minimum account balance requirement or low-balance fees. They should also set up customer service centers due to the absence of physical branches.
Along with the application should come an exit plan for businesses to unwind in an orderly manner when necessary, according to the HKMA. A deposit protection scheme that all virtual banks must participate in will be available to compensate depositors of up to HK$500,000.
The promotion of virtual banking is one of the seven initiatives unveiled by the HKMA to echo the vision of developing Hong Kong into a “smart city” proposed by the new administration under Carrie Lam, Hong Kong’s chief executive elected last year.
Chan believed such promotion helps Hong Kong catch up with the other financial centres.
Other moves by the HKMA to bolster fintech development include launching a faster payment system (FPS), enhanced fintech supervisory sandbox (FSS) 2.0 and open application programming interface (API).