In 2018, when Hong Kong launched its virtual bank licence, there was a palpable sense of excitement. The Hong Kong Monetary Authority (HKMA) received 33 applications, as the success of WeChat Pay and Alipay in mainland China fuelled expectations that virtual banks would revolutionize the industry.
The vision was to create a new kind of bank, one that was entirely embedded in consumers’ lives and seamlessly connected with various apps, offering a full range of services.
Chinese tech giants, including Ant Financial, Tencent, JD.com and OneConnect Financial Technology (part of Ping An Insurance), all threw their hats into the ring. Even traditional banks such as Bank of China and Standard Chartered Bank didn’t want to miss the opportunity, partnering with tech companies to launch their own virtual banks.
However, six years later, the reality has failed to live up to the hype. None of the eight virtual banks in Hong Kong has achieved profitability and their growth momentum seems to be slowing. While virtual banks have seen a 20% increase in customers and a 23% and 19% growth in total deposits and loans, respectively, a closer examination reveals a less rosy picture.
The combined customer base of virtual banks reached 2.1 million in the first half of 2023, but the annualized growth rate has decelerated from 200% year on year in 2021 to just 28% in 2023.
