5 min read

Bank innovation in Hong Kong: a virtual model for the future?

Brandon Chung

The HKMA’s second round of virtual bank licences created a few surprises. But will residents want the new services?

Hong Kong is a fascinating, unique place, a city full of contradictions. One of the first to implement contactless cards, with Octopus in 1997, to pay for travel and as a store of value, it also continues to have high cash usage.

Walk down any of the main streets of Hong Kong island or Kowloon and you’ll often see queues of people at bank branch to withdraw cash. And they’re generally queuing at one bank’s network of around 100 branches and over 300 express banking centres: HSBC.

The city also happens, thanks to the recent intervention of the Hong Kong Monetary Authority (HKMA), be one of the most interesting in global financial services. This is because the HKMA is playing an active role in fostering innovation and competition. Over a period of four months, it has issued eight new ‘virtual licences’ (as the banks/services will have no physical branch), in order to encourage new services and new entrants.

However, although there are already 160 bank licences in operation in Hong Kong, three brands continue to dominate, so what makes this time different? What impact can another eight really have? Potentially a huge one due to a number of factors ranging from the technological to the cultural and beyond.

This new model offers a chance for both large tech players and start-ups to introduce truly digital-first financial services

The virtual licences

The new services will provide tech-savvy residents access to truly digital experiences that will, judging by many of the license owners, combine multiple facets of everyday life. That includes, travel around the city, loyalty schemes and rewards and, naturally, in-app banking, savings and related services.

The first three ventures were announced back in March:

  • SC Digital: a tie up between Standard Chartered and PCCW, HKT, and Ctrip Hong Kong
  • ZhongAn Virtual Finance Limited (ZAVFL): a subsidiary of ZhongAn Technologies, the Chinese online insurer.
  • Livi VB: a joint venture between Bank of China (Hong Kong), JD Digits (a fintech) and Jardines (one of Asia’s biggest conglomerates that is the parent of Hong Kong Land and convenience store 7-Eleven).

We already know how Standard Chartered is approaching the challenge and you can read more about the details in this excellent guest post by Deniz Güven, the CEO and Executive Director, Virtual Bank by Standard Chartered.

So far, so good. But the 5 additional licenses awarded in April and May provide the more fascinating development. It wasn’t the licences themselves but who was awarded them:

  • WeLab Digital: a unit of Hong Kong fintech unicorn WeLab.
  • Ant Financial: Through its Ant SME Services (HK) subsidiary.
  • Insight FinTech: a joint venture between AMTD Group, a financial services institution and Xiaomi, best known for its smartphones, who holds 90% of the JV.
  • Infinium: A consortium formed by Tencent (operator of WeChat Pay in Hong Kong and the mainland), Industrial and Commercial Bank of China (ICBC), Hong Kong Exchanges and Clearing which operates the Hong Kong stock exchange, Hillhouse Capital, and a local entrepreneur Adrian Cheng, executive vice chairman of New World Development and executive director of Chow Tai Fook.
  • PingAn OneConnect: a subsidiary of China’s insurance giant PingAn.


The players are a who’s who of tech firms, fintech, banks and other parties, although one immediate question surrounds the consortium model. If we take a look at Infinium, for example, it is comprised of a:

  • Tech firm (Tencent)
  • Incumbent bank (ICBC)
  • Clearing infrastructure and exchange (HKEX)
  • Private Equity (Hillhouse Capital)
  • Property giant (New World Development)
  • Luxury brand (Chow Tai Fook)

How will they balance the decision making and structure in order to align on a strategic direction? You would assume Tencent will lead, while the inclusion of Chow Tai Fook is likely to be there as a loyalty scheme. But that is a lot of people to bring together to try and gain consensus.

Identities struggle between east and west, traditional and modern, local and foreign, community and individuality, minimalism and consumerism.

Trust, culture and hybrid identities

However, there are more fundamental issues and cultural dynamics at play that could determine the success, or otherwise, of these services. While they offer a rare opportunity for the Chinese technology giants to reach Hong Kong customers at scale that doesn’t mean residents will warm to them.

There is an inherent mistrust and skepticism regarding what new technology and offerings from mainland China could mean for residents, influencing their willingness to adopt these services.

To understand why, it’s important to also appreciate that the identity of Hong Kong, and its residents, is one built on tension.

The 2014 pro-democracy Umbrella movement, consisting of predominantly young students, birthed a protest culture that vividly represents the energy of Hong Kong. It showed that Hong Kongers are willing to stand up to authority to protect values of democracy and, at the same time, energised an emergent identity for the Hong Kong youth.

More recently, the long queues to use cash for purchasing MTR tickets, rather than use the contactless Octopus card, over fears of being tracked to recent protest marches by the mainland, reflect just how deeply these concerns, and mistrust, run.

Hong Kongers are also in a liminal space with a confusion of categories. The combination of the city’s colonial past with Britain, nationalistic future with China, and local present with a unique way of life is at the heart of this confusion. Their identities struggle between east and west, traditional and modern, local and foreign, community and individuality, minimalism and consumerism.

These factors cannot be discounted when considering who, what and how these services will launch and how successful they may be. Specifically, these new ventures must deeply understand the local culture, and create right that brand permission resonates with the local Hong Kong's population.

New ventures must understand the local culture and create right that brand permission resonates with Hong Kong's population.

All eyes on Hong Kong

Ultimately, this new model offers a chance for both large tech players and start-up applicants to introduce truly digital-first financial services, and strategic ventures for incumbent financial institutions to meaningfully build customer relationships and move beyond digitisation.

These new digital services will not simply be East copying West, and instead be a hybrid development where the cultural and political environment are weighed more heavily. It will undoubtedly borrow the best of what the West has in terms of methodologies, operating models, business models and technologies.

The propositions will need to be tailored to the specifics and nuances of Hong Kong. A clue as to how this might develop can be seen in Hong Kong’s first virtual insurance firm, Bowtie, and its use of specific keywords and tone of voice in its messaging to target younger generations. It places an emphasis on trust in this new way of doing insurance, how it defines itself as a new business model based on “fairness”, “transparency” and “speed”.

Will the new virtual banks convince more people to use digitally-native services, and move away from cash? Will residents want, or trust, the services from some of the suppliers? How will major incumbents like HSBC, react?

Lots of outstanding questions.

One thing is for certain, a lot of people will be following developments and see how this plays out, because the answers that emerge could impact the model of how other markets in the region, and beyond, evolve.

Already we’re seeing the likes of Singapore and Malaysia announce a similar virtual model approach to encourage new services. We’ll be taking a look at that in greater depth in another blog.

You can read more about the rise of challenger banks in Asia here.

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 Brandon Chung
About the author

Brandon Chung

Brandon is a consultant, with a focus on using the Jobs to be Done (JTBD) framework to help clients define and build digital propositions that customers will love.

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