Banks in Hong Kong view financial technology more as an opportunity than a threat to their business operations now and in the next five years, according to a research report conducted by the Hong Kong Academy of Finance.
On average, 86 percent of banks have already adopted or plan to adopt fintech solutions across all financial services and bank operations, the report added.
Looking to the next 10 years, banks are confident that they will continue to play a key role through adoption and innovation. Banks would not be displaced by new competitors as technological changes would help enhance business models and maintain core banking services
Edmond Lau,
HKMA senior executive director
The report was completed by the Hong Kong Institute for Monetary and Financial Research (HKIMR), the research arm and subsidiary of the Hong Kong Academy of Finance. The academy was established in June 2019 by the Hong Kong Monetary Authority (HKMA) to facilitate collaboration with other financial regulators in Hong Kong.
The HKIMR interviewed 37 incumbent banks and eight virtual banks to gather insights into the trend of fintech development in Hong Kong. The incumbent banks account for 80 percent of total customer deposits and 75 percent of total assets in the Hong Kong banking industry as of the end of June 2019.
The surveyed banks said that fintech application can bring opportunities in risk management services, mortgage loans and brokerage services.
The survey also said fintech adoption has brought increased cost efficiency and improved profitability. Over the past two years, for every 10 percentage points in fintech adoption by a bank, there was a cumulative decline in cost-to-income ratio by 1.67 percentage points and a cumulative rise in return-on-assets by 0.05 percentage point, according to the report.
However, increasing fintech penetration will bring modest competition on banks’ deposit mobility and market share over the next three years. Deposit interest rates in Hong Kong have been dropping recently because of abundant market liquidity rather than the competition from virtual banks.
“Looking to the next 10 years, banks are confident that they will continue to play a key role through adoption and innovation. Banks would not be displaced by new competitors as technological changes would help enhance business models and maintain core banking services,” HKMA Senior Executive Director Edmond Lau said at a Wednesday news conference.
The HKMA rewarded eight virtual bank licenses last year, whereas ZA Bank — the virtual bank business by mainland-based online-only insurtech company ZhongAn Online P&C Insurance Co — in March becomes the first virtual bank in Hong Kong to provide saving deposit products in the city.
“According to our knowledge, the other five virtual banks are conducting soft launches, whereas their banking products are being tested in the HKMA sandboxes. The other two virtual banks are still in the preparation stage,” Lau said.
The HKMA will not set a deadline to enforce all virtual banks to launch their services. What is important is that the products have been prudentially tested and that these virtual banks can comply with regulatory requirements, Lau said.
Regarding the HKMA’s Open Application Programming Interface (API) initiative, banks and third-party service providers now exchange product information and customer acquisition information with each other. About 800 APIs have been developed to facilitate these product information exchanges.
The HKMA said that it requires more time to facilitate information-sharing between banks and third-party service providers relating to account information and transactions, such as payments and transfers.
