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Virtual Banking Marks an Important Step in Hong Kong Delivering on Smart City Initiative

Blog Post09/19/2019
Image showing virtual banking - smart city initiative

2019 has already been a remarkable year for Hong Kong’s fintech development. The Hong Kong Monetary Authority (HKMA) has granted eight virtual banking licenses, a strategic move to realize its goal of building “a new era of smart banking” in the city.

For many people in Hong Kong, the concept of a Smart City may feel quite distant. While there has already been a huge amount of progress made in developing strategies and infrastructure to support the Smart City vision, many of these plans are yet to be fully executed, or their impacts are yet to be felt in our daily lives. By contrast, virtual banks will soon be open for business. They will change the way banking is done and provide tangible evidence of Hong Kong’s transformation into a Smart City.

We know many tech-savvy millennial consumers prefer a virtual experience and want to interact with their bank solely through non-branch channels. With no physical branches, virtual banks will deliver just that. Their business models are built around fully utilizing digital channels and resources, which bring advantages of cost efficiency and greater technical agility. They are focused on enhancing customer experiences and driving the development of innovative financial solutions.

In reality, the benefits of virtual banking are attractive to all generations, not just millennials. Many experts believe it will promote greater financial inclusion. As new entrants into a highly competitive banking market in Hong Kong, these virtual banks will need to compete with the rapidly developing online platforms of the incumbent banks. Virtual banks argue they will provide tailored services to individual consumers and businesses who have been under-served by conventional banks. Regardless, one thing is for sure, there is a huge amount of change across the entire banking sector which has a renewed focus on customer-centric strategies, all of which are in line with the HKMAs long-term goal.

Fundamental building blocks for the new virtual banks

To launch their services on time, virtual banks need to tackle the issues of risk management, security and anti-fraud by building a feasible system for identity verification, remote onboarding, credit decisioning, and portfolio management. They will need to form partnerships with organizations that already have virtual banking experience and have helped new market entrants navigate the digital economy around the globe, and know the challenges Hong Kong’s new virtual banks will need to overcome.

They will need to understand new datasets and technology and ensure that it links, interprets, and analyzes information to detect anomalies and patterns of risk. Ultimately, those banks that assess and manage portfolio risk best, whilst still ensuring a great customer experience, will be the ones that overcome resistance to digital transformation and are ultimately successful.

Wingo Wong, Vice President and Chief Business Officer for TransUnion Hong Kong, explains:

“Finding new ways for technology and data to be used to help businesses make better and smarter decisions is part of our core philosophy. Through the power of information it is possible to build stronger economies and families and safer communities. We call this Information for Good.

The benefits the Smart City initiative will bring are clear. With the emergence of virtual banks and the digital transformation of conventional banks, Hong Kong consumers and SMEs customers will benefit from improved banking services, better customer experiences, more competitive pricing, and product innovation.

We strongly believe that, through financial innovation and the power of information, Hong Kong will strengthen its position as Asia’s financial hub and realize its Smart City vision.”

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