Shareholder Analysis
- In 2020, Hong Kong welcomed the launch of eight virtual banks in the city
- Over half of the virtual bank backers based out of Mainland China, while only one is of a foreign origin, together forming a robust mix of finance and technology expertise
Customer Dynamics
- The retail customer segment for virtual banks appears to primarily consist of customers aged between 25 to 44 years of age, in the aspirational or mass affluent segment
- With 340,000 SMEs, constituting more than 98% of businesses in Hong Kong, virtual banks appear to be targeting import / export trading SMEs, especially eCommerce firms
- To acquire these customers, the virtual banks have opted primarily for a digital-driven channel strategy, via social media, targeted ads, referral / joining reward schemes, etc.
- While their visible Customer Acquisition Cost (“CAC”) is estimated to be HKD 300, the true CAC is estimated to be approximately HKD 1,296 per customer
Products and Services
- The virtual banks have rapidly launched a number of digital offerings since emerging, including: (1) deposits; (2) payments; (3) lending; and (4) insurance products, amongst others
- For deposits, while all are offering savings account, some are also offering a time deposit
- On the payments front, virtual banks are offering a mix of debit and credit cards, aiming to allow customers to carry out transactions both online and offline
- Virtual banks are increasingly looking to grow their loan book, by launch lending products like personal loan, buy now pay later (“BNPL”), etc.
- Insurance products have also witnessed traction, especially from ZA Bank in particular
Technological Capabilities
- Virtual banks have deployed several innovative technologies across the value chain, from prospecting / marketing to maintenance and servicing and data management
- To boost their prospecting / marketing, they are leveraging social media and targeted ads
- Virtual banks have streamlined the customer onboarding experience by completely digitalising it, to allow 24/7 onboarding in as little as 2 minutes and 3 seconds
- Virtual banks leverage data shared across partners and sources to generate insights on customers in order to create personalised products / services
- Services like chatbots give WeLab Bank and ZA Bank distinct advantages over the competition given their ability to engage customers over changes in time and scale
- We are also seeing the virtual banks utilising cloud technology to better collect, store, and protect their data
Future Outlook
- There are multiple key factors that may determine the fate of virtual banks across the customer value chain (i.e. acquisition, engagement, monetisation, and loyalty)
- Based on mobile app ratings, Mox Bank, ZA Bank, and WeLab Bank appear to be currently leading the pack
- The virtual banks are forecast to capture almost a quarter of the Hong Kong populace by 2025, yielding HKD 560 billion in deposits, estimated to translate to HKD 76 billion in aggregate revenues by 2025, representing a combined market share of 19.3%
