Ping Me the Details: Chinese insurance giant, Ping An OneConnect, set to join Hong Kong’s virtual banking race

July 1, 2019

2 min read

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What's going on here?

The HKMA (Hong Kong Monetary Authority) recently granted a virtual banking license to Ping An OneConnect, a fintech (financial technology) branch of one of China’s largest insurance companies Ping An Insurance.

What does this mean?

To give some background, the concept of virtual banks was introduced last year by the HKMA, the first of its kind worldwide. And as the name suggests, virtual banks are banks that can accept deposits and issue loans online without setting up physical branches. These banks are designed to be a key pillar in supporting the city’s entry into the Smart Banking Era. They do this by offering a complementary suite of technologies such as biometric identifiers, big data, block-chain and cloud computing to provide secure financing for retail banking (or consumer banking) clients.  

As of May, eight applicants have been granted licenses. Many of the successful contenders were products of joint ventures between traditional banks, like Standard Chartered and Bank of China, Chinese tech giants like Tencent and Alibaba, and non-financial institutions. These institutions have sectorial speciality including telecoms and financial advisory services. Ping An OneConnect, is just the latest to join the virtual banking race. They seek to add value by developing fintech tools to manage fraud and default risk for SME clients. This includes utilising natural language processing technology (a form of AI) to help other banks identify delinquent borrowers from language and tone.

What's the big picture effect?

As a highly cash-reliant economy, Hong Kong will benefit from a digital shake-up in the banking industry. With an estimated 30% of the city’s total banking revenue (or $15 billion HKD) up for grabs, these up-and-coming banks are set to create waves in one of the most saturated financial markets in the world. According to Citibank, it is further estimated 10% of existing bank revenue is at risk over the next decade. Further, it is likely that other financial centers with similar patterns of cash reliance, like Tokyo, Zurich and Singapore, will take notice and follow with a launch of other financial innovations through virtual banking.

On a wider scale, virtual banking opens up prospects of borderless banking in the Greater Bay Area, an integrated economic and business hub consisting of 11 southern Chinese cities coined as the “future rival to California’s Silicon Valley”. This presents an opportunity to kick-start a slowing Chinese economy – still reeling from the US-China trade war – which hopefully can reignite a chilling attitude towards funds-raising in plucky tech startups. On this, Ping An OneConnect already express confidence in virtual banking with their announcement to list by the end of this year, raising up to USD$1 billion – the city’s highest profile deal since early 2019.

All in all, the launch of virtual banking in Hong Kong might be the key factor to lift China’s economic slump, raising both regional and international standards (particularly on secure financing) for banking services – making this space worth watching in the very near future.

Report written by Roslyn L

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