• Antonio Tinto
  • Published: 09 April 2019


On 27 March 2019, the Hong Kong Monetary Authority granted the first three virtual banking licenses. This blog explores what virtual banks are, how they are different from other banks, and how they are disrupting business as usual in Hong Kong’s financial services industry.

So what’s a virtual bank?

While a virtual bank may be quite different to an incumbent, compared to a digital bank or neobank, the reality is in fact quite nuanced:

  • Digital bank: Delivers its services online, often operating as a component of a large bank and therefore, still subject to conventional regulatory frameworks.
  • Neobank: Independent from large banks but may use partners to offer bank-licensed services. Operate under much more permissive regulatory frameworks.
  • Virtual bank: Similar to neobanks, virtual banks are not allowed to have physical branches. In May 2018, the Hong Kong Monetary Authority released revised guidelines for virtual banks, which are subject to the same regulations as traditional banks. 

Why choose one?

The key aim of virtual banks is to increase financial inclusion through digital services and provide new competition and opportunity within the financial services ecosystem. With new infrastructure being built to facilitate the inflow and outflow of visitors to Hong Kong, organizations are looking at how they can manage increased spending. 

For Hong Kong specifically, the new infrastructure will help manage increased spending from visitors and residents. Meanwhile, mainland citizens want easy access to financial services and citizens travelling to foreign destinations want a solution that improves spending across borders. Fortunately, given the flexible regulatory environment, virtual banks have an opportunity to form partnerships that will enable them to expand their services and accelerate access to new markets. 

How are they gathering speed?

Partnerships have been difficult for incumbent banks thus far. Many banks have either taken a ‘DIY’ approach, or have kick-started customized partner integrations, which were often delayed or never delivered as a result of poor management. 

For virtual banks however, partnerships will be critical in order to ramp up growth and create innovative customer propositions. In fact, cross-industry partnerships could create a new level of customer experience. Tour operators, mobile operators and retailers are integrating financial products into their offerings – enabling better customer experience. 

We are already seeing these partnerships being formed. SC Digital, one of the virtual banks backed in part by Standard Chartered Bank, is a joint venture with HKT (a PCCW telco provider) and Ctrip (the Chinese provider of travel services). SD Digital aims to offer the ability to open bank accounts and manage financial services on-the-go. The other two virtual banks are backed by two mainland Chinese FS players, ZhongAn and the Bank of China. Livi VB is a joint venture of Bank of China, JD Digits and Jardine. Jardine is a large Hong Kong-based conglomerate which has presence in many sectors, including retail personal care. We may therefore see virtual banks having greater integration capabilities through APIs, allowing other digital players such as e-commerce and gaming to access their services. 

What next? 

As APIs become more prevalent, we will see further development opportunities for virtual banks and growth in Asia’s wider fintech ecosystem. It’s certainly an exciting time to be a Hong Kong banking customer and working in this space! 

For more information about how we can help your business to unlock new customer propositions with virtual banking and open banking capabilities, please contact Antonio Tinto