Like many online-only banks around the world, some of Hong Kong’s eight licensed virtual banks are venturing into more lucrative businesses such as wealth management after building their customer base from scratch through lower-margin services such as deposit accounts, loans and money transfers. ZA Bank Ltd., the city’s first virtual bank that started operation in March 2020, is applying for licenses from the Securities and Futures Commission to manage assets and engage in securities dealing and advisory, after having received another license to sell insurance products on its platform. WeLab Holdings Ltd., another virtual bank that debuted in July 2020, has partnered with a digital investment unit of Allianz SE to develop digital wealth management products since March. Other virtual banks such as Livi Bank Ltd. and Standard Chartered PLC-backed Mox Bank Ltd. also said they are preparing for similar forays.
It is common for virtual banks to remain unprofitable during their first few years of operation due to up-front investments in product development and customer acquisition. In addition, their funding costs are often higher than that of traditional banks, as they have a much smaller deposit base and usually offer higher interest rates to attract deposits. Xiaomi Corp.-backed Airstar, for example, is offering a 3.6% deposit rate to customers, compared to less than 1% for most major banks in the city. While larger traditional banks, such as HSBC Holdings PLC and Citigroup Inc., are targeting high net worth individuals in their wealth management expansion in Asia, the virtual banks are likely to focus on the mass market as well as younger customers who are already using their services. According to consultancy Quinlan & Associates, the average deposit per customer at Mox was more than HK$70,000 as of December 2020, compared with HK$460,000 estimated for HSBC. As of end-2020, deposits at the eight virtual banks totalled HK$15.77 billion, according to company filings. That was equivalent to 0.1% of the HK$14.514 trillion of deposits in Hong Kong’s entire banking system, according to the Hong Kong Monetary Authority.