Hong Kong's digital banks consider physical branches after HKMA rule change
South China Morning Post
4 min read
Some of the city's eight digital banks are exploring setting up physical branches after the Hong Kong Monetary Authority (HKMA) cleared the way for them to do so in its continuing effort to aid such lenders' development.
WeLab Bank, ZA Bank, and Mox Bank are among those considering opening bricks-and-mortar branches, while Livi Bank has no plans to do so, the banks told the Post separately in response to inquiries.
The HKMA issued eight virtual bank licences in 2019 to inject innovation and competition into the industry. The following year ZA Bank, WeLab Bank, Mox Bank, Ant Bank, Livi Bank, PAO Bank (formerly named Ping An OneConnect Bank), Airstar Bank and Fusion Bank started operations.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
As the biggest reform for these lenders since their launch, the HKMA in October issued a new rule allowing them to have limited physical branches. It also replaced the term virtual bank with licensed digital bank in a bid to boost public confidence in the firms.
"Taking into consideration feedback from the industry, the HKMA considers that giving flexibility to digital banks to conduct business through non-electronic channels in a limited manner will help improve their transaction processes and enhance customer experience," a spokesman of the HKMA said.
"The HKMA will carefully evaluate the rationale and justifications when processing applications from digital banks to set up a physical branch."
Mox Bank CEO Barbaros Uygun believes the rule change will help the digital banks compete while also benefiting the public.
Barbaros Uygun, CEO of Mox Bank, interviewed in Taikoo Place, Quarry Bay on February 1, 2024. Photo: Sun Yeung alt=Barbaros Uygun, CEO of Mox Bank, interviewed in Taikoo Place, Quarry Bay on February 1, 2024. Photo: Sun Yeung>
"The move to allow digital banks to have a physical presence not only opens up business opportunities but also enhances the competitiveness of digital banks and customer trust, fosters greater financial inclusion, and accelerates the growth of the industry," Uygun said.
Mox bank's physical presence is likely to focus on offering advisory service, he said, adding that the bank, which is co-owned by Standard Chartered, will continue to elevate its digital services.
WeLab Bank, which just reported its first monthly profit in December, will also explore setting up branches, said CEO Tat Lee.
"We maintain an open attitude to the possibility of establishing offline channels for customer engagement," Lee said. "It is important that the offline channels utilise diverse methods to interact with the public and enhance awareness of the digital banking services. We aim to leverage digital innovation in different aspects to drive local financial inclusion further."
WeLab Bank CEO Tat Lee at his offices in Quarry Bay on October 12, 2023. Photo: Jonathan Wong alt=WeLab Bank CEO Tat Lee at his offices in Quarry Bay on October 12, 2023. Photo: Jonathan Wong>
ZA Bank, the biggest digital bank in the city and the first to report a monthly profit, in July, welcomes the introduction of physical branches, which will enable customers to address complex issues more effectively and efficiently.
"Face-to-face interactions can significantly improve the resolution process, further enhancing the overall customer experience," a spokesman said. "Providing an outstanding customer experience has always been central to our digital banking strategy."
Livi Bank, however, sees branches as unnecessary at this time.
"Livi currently has no plans to set up branches, as customers are increasingly accustomed to embracing the fully digital banking experience," a spokesman said. "As a digital bank, we remain committed to focusing on providing innovative digital products and services that meet our customers' needs."
The expansion of the digital banks into real-world locations comes as traditional lenders are closing smaller branches in favour of new branches in prime locations to tap wealth-management clients.
Bank of East Asia, for example, opened a large Harbour City branch last year, after cutting its branch network almost in half to 48 over the past 10 years. OCBC is also looking for prime locations to open a flagship branch after it closed three of its branches in 2023, reducing the total to 26 in Hong Kong.
Other digitally focused financial-services firms have also stepped up efforts to set up offline branches to connect with customers.
Digital broker Futu Securities opened a branch in Causeway Bay in October. Photo: Jonathan Wong alt=Digital broker Futu Securities opened a branch in Causeway Bay in October. Photo: Jonathan Wong>
Virtual insurer Bowtie Life Insurance in 2021 opened the doors to Bow Coffee in Wan Chai. The coffee shop is also a venue for its customers to raise any questions about their policies.
Futu Securities International (Hong Kong), which started in the city 12 years ago as a digital broker offering trading services through apps, set up its fourth outlet in October in bustling Causeway Bay. Its other branches are in Mong Kok, Tsuen Wan and Tsim Sha Tsui, while its headquarters is in Admiralty.
Brokerage Phillip Securities Group is scouting for additional locations and is upgrading its three existing branches in Admiralty, Kwun Tong and Sheung Shui. The firm, founded in Singapore in 1975, reduced its network from seven locations during the recent market slump.
"Branches do have the advantage of attracting new customers," said Louis Wong, executive director of Phillip Capital Management (Hong Kong), part of the brokerage group.
