The Hong Kong Monetary Authority (HKMA) plans to replace the term “virtual bank” with “licensed digital bank” in reference to the eight branchless lenders operating in the city to remove negative connotations associated with the term in Chinese.
The de facto central bank started a one-month consultation to collect views on the name change proposal on April 30.
The term “virtual bank” will soon be consigned to history, according to Arthur Yuen Kwok-hang, deputy CEO of HKMA.
“The Chinese name of the virtual bank could be interpreted as ‘fictional’, which carries a meaning of not real or true. The name has a negative impact on virtual banks,” he said, adding that the change in English will match the Chinese name.
“This is also in line with the international trend, as Europe, Malaysia and Singapore have also adopted the term digital bank.”
Livi Bank, a virtual bank backed by Bank of China (Hong Kong), supported the proposed name change plan.
“Some members of the public thought virtual banks only offer services related to virtual assets,” said David Sun, CEO of Livi Bank.
“The proposed renaming to ‘licensed digital banks’ will make it easier for the community to understand the business nature and regulation of the banks. It will also help the industry to build business partnerships in Hong Kong and the Greater Bay Area.”
Other virtual lenders, including WeLab Bank, Mox Bank, and ZA Bank, said they supported the HKMA’s proposal.
Robert Lee Wai-wang, a lawmaker representing the financial services sector, believes the name change will help the growth of the digital economy in Hong Kong.
“I support the HKMA’s proposal because the Chinese name of virtual banks has some sort of negative meaning,” Lee said. “The change will help the public to have a better understanding of the nature of these banks. Perhaps the regulators should also discuss whether they should change virtual assets to digital assets.”
The HKMA issued eight virtual bank licences in 2019 to inject innovation and competition into the industry. ZA Bank, WeLab Bank, Mox Bank, Ant Bank, Livi Bank, Ping An OneConnect Bank, Airstar Bank and Fusion Bank started operations in 2020. They are not allowed to have any physical branches and can only offer banking services online.
As these lenders were launched in the midst of the Covid-19 pandemic, they have thrived as people were forced to work from home while hundreds of traditional bank branches were forced to suspend operations. This boosted the public’s acceptance of virtual banks as they could handle their banking affairs on their smartphones or computers.
The virtual banks have garnered a combined 2.2 million customers by the end of last year, an increase of 20 per cent from a year earlier, according to HKMA data.
Deposits jumped 23 per cent year on year to HK$37 billion (US$4.7 billion), while their loans rose 19 per cent to HK$19 billion in the same period.
Revenue in the first half of last year stood at HK$530 million, almost double from a year earlier.
“These figures show the virtual banks have been growing well and the new generation of banks can compete with the traditional lenders,” Yuen said. “The emergence of these virtual banks has forced many traditional banks to improve their digital banking services.”
From a financial inclusion point of view, the virtual banks have offered more banking choices for customers, he said, adding that traditional banks have not provided comprehensive services to retail banking customers and SMEs [small and medium-sized enterprises], which the virtual banks have helped to fill. – SCMP
