By Alfred Liu
Long gone are the days when banking meant having to stand in line at crowded branches to cash a check or apply for a loan. Automated teller machines, the internet and mobile apps mean many people hardly ever step foot inside their bank. So-called virtual banks question the need for brick-and-mortar branches altogether. With catchy names such as Ally and Simple in the U.S., Monzo in the U.K. and WeBank and MYbank in mainland China, these digital-only upstarts have been signing up lots of customers, especially among the young. Now Asia’s financial hubs, Hong Kong and Singapore, are getting ready to hop on the bandwagon, issuing licenses for new entrants.
1. What’s a virtual bank?
The Hong Kong Monetary Authority defines it as a bank that delivers services through the internet or other electronic channels instead of physical branches. That means not only facilitating payments but accepting deposits and making loans, just like traditional ones. Other terms used interchangeably include digital or digital-only banks or neobanks. By contrast, so-called digital wallets or e-wallets such as Apple Pay, PayPal or Google Pay usually serve as intermediaries between a consumer’s traditional account or credit card and a merchant, usually via a smartphone or computer.
2. What’s the draw in Asia?
Hundreds of millions of people under-served by traditional institutions, for one thing. In China, India and elsewhere, digital wallets such as Alipay, WeChat Pay and Paytm have already become ubiquitous, offering millions of people an easy way to store and spend their money via mobile phone. Indonesia, Vietnam and the Philippines are also among the world’s biggest under-banked countries; together they have almost half a billion people.
3. Are Hong Kong and Singapore short on banks?
No, but the two cities are among the most cash-reliant major economies, leaving room for newcomers to disrupt the entrenched industry. Ant Financial, an Alibaba Group Holding Ltd. affiliate that runs Alipay and MYBank, and Tencent Holdings Ltd., the company behind WeBank and WeChat Pay, are among the owners of the eight ventures licensed to create virtual banks in Hong Kong, with operations expected to start as early as the end of the year. The Monetary Authority of Singapore will invite applications in August for as many as five virtual banking licenses. Taiwan joined in as well, approving in July the creation of three virtual banks.
4. How do virtual banks work?
Customers do everything from opening accounts to borrowing money to wealth planning using their mobile phone or computer. Some allow cash deposits or withdrawals from others’ ATM networks, using debit or credit cards. In Japan, Seven Bank, a unit of Seven & I Holdings, has its ATMs in 7-Eleven convenience stores. In the U.S., some even provide checkbooks. The new entrants in Hong Kong have yet to announce what their specific offerings will be.