In Asia, virtual banking is being seen as an overhaul of the bank sector – but in reality it could be more of the same from the existing players, just under a new name.
The arrival of virtual banking in Asia might not turn out to be the revolution everyone is expecting.
As countries across Asia moved to permit virtual banks for the first time, onlookers wondered how the incumbent banks would cope with the arrival of so many leaner, cheaper and, to their target younger audience, more attractive banks. The truth is, some of the incumbents were behind the creation of these banks.
Among the new virtual banks granted licences in Singapore and Hong Kong are banks backed by Ping An Bank, Ant Financial and Standard Chartered: hardly the tiny start-ups working away in a shared office incubator space that had been anticipated.
In truth, this might be the safest option for the industry. The regulators want to shake up the banking sector, but are not willing to risk their own reputation in doing so. Running a modern bank demands technology that can be operated in real time and around the clock, while keeping on top of ever-growing regulations, know your customer requirements and anti-money laundering rules. And all while operating in a sleek user interface that moves fast enough to keep the user engaged.
The last thing the regulators want is for this nascent industry to become the home of money laundering or sanctions violations. Having a strong compliance team is a necessary burden if banks wish to survive; having the backing of an established bank that has weathered the storm of regulation could be what stops the new industry from encountering damaging issues.
As for virtual banking in Asia, most new entities are yet to launch. There has been success in some parts of the region, notably in South Korea, which has seen its virtual banks become profitable after just as few years in operation.
But whether all eight of the banks granted licences in Hong Kong will be financially viable – as they compete among themselves, with 30 locally incorporated licensed banks, and with all the international banks that have a presence in the special administrative region – it will come down to whether consumers want to do their banking through their mobile phones.
