Virtual banks: To be or not be? (Part II)

As discussed in our previous article, developing virtual banks in Hong Kong is not easy. This article will explore why virtual banks still choose to grasp the nettle. Although FinTech’s future in Hong Kong is not yet bright, virtual banks need not be discouraged. Virtual banks’ comparative advantage over electronic banks is its service chain of the group behind its collection. SC Digital Solutions, led by standard chartered, said the virtual bank would take advantage of its partners’ unique telecommunications, entertainment, and travel services to market retail financial services and products, providing personalized customer service. Livi VB, a joint venture of Boc Hong Kong, will also use cutting-edge technologies such as artificial intelligence, blockchain, big data, and intelligent risk modeling to create a simple, seamless and safe digital ecosystem.

Diversified in services and products, virtual banks are also convenient and cost-effective. Transactions are fast and interest savings are high. It is believed that virtual banks may disrupt traditional commercial banking industries, rending banking as a simple time-saving “behavior” rather than a physical “place”.  As discussed before, virtual banks are not substitutes of electronic banks given it offers different competitive services and products.

Virtual banks in foreign countries are diversified and have different bargaining chips. Revoult in the UK offers free international remittances, free financial budgets, instant cash transfer and purchase of cryptocurrency; Germany’s Fidor links its interest rate to the number of “likes” on Facebook to attract customers. The Mainland’s Alibaba launches the “Zhima Credit“, a private crediting scoring that can be based on social media interactions and transactions done on Alibaba Group websites. A higher credit score means easier access to loans. Therefore, the financial sectors say that the objective of the HKMA launching virtual banks is to facilitate FinTech innovation and collaboration with creative institutions and foreign enterprises.

Interestingly enough, where social corporate responsibility is highly upheld in the 20th century, virtual banks promote financial inclusion—that individuals and businesses have equal access to useful financial services and products that are delivered responsibly and sustainably. The World Bank, the United Nations, and other international organizations proposed it in 2005, with an aim to benefit the disadvantaged neglected by the traditional finance system, such as rural poor groups and SMEs. If virtual banks flourish and take full advantage of technology, the issue of “financing banking’s discrimination against the poor” will be tackled. For example, the Global Development Laboratory in the US has made use of big data to grant loans to poor people who wish to start a business or become self-sufficient.  

At the end of the day, the answer to the question “virtual banks: to be or not to be? to benefit or not to benefit?” depends on whether they can make the most of technology to tackle the pain points of the current financing banking system. The question follows then that is: are we solving a purely technical problem or a system one? If it is a system issue, can virtual banks generate additional value? If not, why would Hong Kong people open virtual bank accounts when they already own traditional or even electronic banking accounts? If not, are we setting up virtual banks just for the sake of it? 

However, there is no doubt that whoever companies can systematically deal with the aforementioned banking pain points, whether they physical banks or virtual banks, Chinese-funded companies or British-funded companies, they will become unicorns. In the future, can virtual banks surmount all difficulties and rise up?  Let’s look forward to it!

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