HONG KONG • Hong Kong’s virtual banks face years of red ink after making limited inroads against their physical rivals in the financial hub.

The two leading digital banks Mox Bank – backed by Standard Chartered – and ZA Bank – funded by ZhongAn Online P&C Insurance – predict that they will start breaking even by 2024 at the earliest, as they continue to expand their operations and deploy new products.

The launch of a bank – even a virtual one – is capital intensive and it generally takes years to develop and be profitable.

More than a year after the launch of the first virtual bank, they are gaining ground but do not yet pose a serious threat to incumbents such as HSBC, Hang Seng Bank and even Standard Chartered itself.

“When you look at the global examples, there are a few digital banks, they just broke even after five or six years,” said Mox CEO Deniz Guven. Mox could start making a profit in three to four years, he added.

Digital banks compete for a share of the city’s retail, commercial and corporate banking revenues, estimated by consulting firm Quinlan & Associates at HK $ 373.9 billion ($ 63.8 billion) in the year last. Hong Kong’s eight virtual banks had attracted HK $ 19 billion in deposits as of March 31, or about 0.1% of the city’s total, an official with the Hong Kong Monetary Authority said.

ZA, the first digital bank to launch in March last year, had more than 300,000 customers, while Mox, which started in September, had more than 90,000 customers in March. The two account for about 62% of the total of 630,000 accounts opened at digital banks. Many of these clients also have accounts with other lenders.

While ZA initially offered a nifty deposit rate of up to 6.8%, lenders refrained from undercutting their traditional rivals on price.

Mox offers a 0.65% deposit rate and, according to Guven, doesn’t want to compete on price alone. “We believe that fair pricing is the most important,” he said. “You don’t have to be totally competitive.”

In response to the emergence of digital rivals, traditional banks have “reacted fairly quickly” since 2019, improving their digital channels and rethinking some of their minimum deposits and fees, according to ZA CEO Rockson Hsu.

The incumbent banks have been “aggressive” and many of them have reduced or eliminated the fees. For example, HSBC has removed some general banking and transaction fees, and also removed its monthly fees for customers with deposits below HK $ 5,000, the consulting firm said.

Mox plans to increase its workforce by 20% this year, adding around 40 people to its current workforce of around 190.

The lender started offering a credit card this month and plans to introduce loans, currencies and wealth products.

ZA is also in recruiting mode as it adds offers including wealth management. The products could include mutual funds, fixed income securities and stock trading. About half of ZA’s staff are in Hong Kong and the rest in Shenzhen, Hsu said.

Another digital upstart, Airstar Bank, said in a statement this week that it will be the first virtual bank to offer a remote integration service for small businesses in the city through a pilot program.


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