Hong Kong’s banking sector worth over HKD 370 billion
Hong Kong’s banking sector is worth an estimated HKD 370 billion (~US$50 billion), according to a strategic market assessment by Quinlan & Associates. In years to come, virtual banks are touted to grab a sizeable share of this market from incumbents.
Quinlan & Associates was commissioned by the FinTech association of Hong Kong to draft an overview of the banking scene in Hong Kong – at a time of unprecedented disruption for the sector. The goal was to identify current and future growth drivers.
As it stands, combined revenues from retail, commercial and corporate banking amount to HKD 373 billion for authorised financial institutions in Hong Kong. More than two-thirds of this stems from interest income – building on over HKD 10.5 trillion currently out in loans and advances – and deposits stand north of HKD 14 trillion.
The market is huge, and currently dominated by four major players – HSBC, Bank of China (Hong Kong), Standard Chartered and Hang Seng. These four banks account for 62% of total deposits and more than half the credit market – drawing combined revenues of HKD 226 billion.
HSBC towers over the rest, with over HKD 95 billion of this pool. Hang Seng and Standard Chartered account for more than HKD 45 billion each, while Bank of China trails with revenues of around HKD 36 billion. More than 170 other licensed banks and over 2,000 lenders in Hong Kong make up the remainder of revenues – roughly HKD 150 billion.
Dominant as they are, the researchers find several shortcomings in the incumbents’ proposition. “Despite the size and maturity of Hong Kong’s banking industry, there are lingering customer pain points that incumbents are failing to address,” noted Benjamin Quinlan, CEO and managing partner at Quinlan & Associates.
“In particular, these are felt most by retail customers and small and medium-sized enterprises.” Filling this sizeable market gap in recent years have been virtual banks – financial players with a purely digital presence that offer a wide range of innovative and accessible solutions, focused on delivering a better customer experience.
The rise of virtual banks
Riding the FinTech surge sweeping through Asia Pacific and the world, “virtual banks have wasted no time in trying to appeal to local residents and businesses, including offering attractive deposit and savings interest rates, lucrative reward schemes, and a seamless onboarding experience,” according to Quinlan.
These smaller, branchless challengers are targeting select parts of the incumbents’ proposition – savings, deposits, loans, payments, etc – aiming to edge their way into individual segments of the market. Eight key virtual players have emerged with a selective scope of services: ZA Bank, Airstar Bank, WeLab Bank, livi Bank, Max Bank, Ant Bank, PAOB and Fusion Bank.
Their potential is vast, particularly during an economic crisis when incumbents are struggling with flattened interest rates and high credit. By 2025, virtual banks could occupy just under 20% of Hong Kong’s banking market – with revenues of HKD 76 billion; deposits of HKD 560 billion; and loans in excess of HKD 380 billion.
Some barriers exist: most notably the trust deficit for virtual banks compared to the high trust in incumbents. For now, less than a quarter of Hong Kong’s population – 1.9 milliion people – is interested in a virtual bank account. “To ultimately succeed, the virtual banks will need to put in place a clear strategy to win over customer hearts and minds,” noted Eashan Trehan, consultant at Quinlan & Associates.
On the agenda is strong branding and marketing; unique offerings; a good experience; a robust system for data privacy and cybersecurity; cloud investments for stability and scalability; and strategies to retain talent. The good news is that virtual banks can benefit from alternative revenue streams – such as using customer data to form value-adding partnerships with third-parties.
So a sizeable opportunity is up for grabs by 2025, although not big enough for all eight challengers currently vying for market share. The researchers expect the number of virtual banks in Hong Kong to shrink in the near future, mainly through consolidation. “For the handful of players who can successfully navigate their mission of branching off, both from their brick-and-mortar and virtual bank rivals, rich pickings await,” concluded Quinlan.