ZhongAn, StanChart-backed lenders take early lead in HK digital bank race

Online-only banks in Hong Kong backed by China’s ZhongAn Online P&C Insurance and Britain’s Standard Chartered moved ahead of newly launched rivals as they garnered 70% of deposits last year. The numbers give the first glimpses of the performances of Hong Kong’s eight so-called virtual banks.

This is launched last year and it can offer lessons to peers in Asia, with Singapore’s digital banks set to kick off operations next year and Malaysia set to follow. At the end of 2020, these eight banks had total customer deposits of HK$15.8 billion ($2.03 billion). Of this, ZA Bank, operated by a unit of ZhongAn, and StanChart-backed Mox Bank had deposits of HK$6.04 billion and HK$5.2 billion, respectively, at year-end.

Deposits are the key for the online-only banks. They are a source of cheap funding and primary route for brand-building. Ben Quinlan CEO of financial services consultancy Quinlan & Associates said that Mox and ZA have done a good job of engaging with customers and building a brand. The lenders which began operating are seeking to win business with improved user experience, technology and promotional rates.

Up to HK$76 billion worth of revenue could be up for grabs for virtual banks by 2025, Quinlan & Associates has estimated. Digital banks are unlikely to make a large dent on high street behemoth HSBC as well as Bank of China Hong Kong and Standard Chartered. ZhongAn was the first among the eight virtual lenders to launch, while Mox was in the middle of the pack.

The banks are starting to move into revenue generating segments such as business lending and wealth management. Andrew Gilder, who leads EY’s Asia-Pacific banking and capital markets practice, said that getting a large deposit base quickly can be a good indicator of more efficient on boarding and how consumers perceive early products, services, and the overall user experience. It will be important for their longer term viability also that they roll out new products such as loans and credit cards to make the most of these customer numbers and drive profitability.