Prepaid card industry grows: Two More Hong Kong Firms Receive SVF Licenses From HKMA

In an attempt to drive the city’s digital banking industry forward, the Hong Kong Monetary Authority (HKMA) announced earlier this month that it is issuing stored value facilities (SVF) licenses to two more local firms.

The city’s de facto central bank made the decision to grant the licenses to Geoswift Cards Services Limited and Yintran Group Holdings Limited on May 10, bringing the total number of SVF licenses granted by HKMA to eighteen. The two firms mainly offer payment clearing services and are expected to use their new licenses to offer prepaid card services.

The SVF scheme was first launched in 2016 to regulate the market for prepaid cash storage services.

“The SVF industry has been growing since the implementation of the SVF licensing regime in 2016. We hope the existing as well as the new licensees will continue to launch new services to bring more convenience and choices to consumers and merchants, and to promote diversity in the payment ecosystem of Hong Kong,” said Howard Lee, deputy chief executive of the HKMA.

After years of slow consideration of risks, Hong Kong has now put pedal to the metal in the develop of customer-focused financial technologies. The most visible push was the granting of two batches of licenses for virtual banks.

The HKMA has granted eight such licenses to date, including four in April to Ant Financial’s Ant SME Services, Infinium, Insight Fintech HK and Ping An OneConnect Company.

HKMA Chief Executive Norman Chan said that the introduction of virtual banks in Hong Kong will be “a key pillar” to support Hong Kong’s entry into an era of smart banking. Virtual banks could challenge the traditional dominance of traditional bricks-and-mortar institutions that are very visible in Hong Kong. The city has more bank branches per capita by area than any other jurisdiction in the world.

But the granting of the banking licenses has been a long time coming. Japan, for example, has had digital banks for more than a decade and a half and the UK started experimenting with them in the 1990s. Japan opened its first virtual bank, the Japan Net Bank, in 2000. Mainland China has issued five virtual bank licenses since 2014, with half of them reporting profits just one year after the start of their operations.

In Hong Kong, the SVF market has been dominated by the Octopus card, which has remained virtually unchanged for more than three decades and operated virtually without competition.

The granting of more licenses for SVF and virtual banks could drive growth in the industry. It could also shore up Hong Kong’s role as a gateway into the Greater Bay Area and China as a whole.

“With Hong Kong’s proximity to China and its position as the gateway to China, Hong Kong is one of the most well-connected fintech hubs in the world,” said Raymond Qu, founder and CEO of Geoswift.