2 Key Questions about Virtual Bank
Since the virtual banking initiative was announced by HKMA under “new era of smart banking” in Sep 2017, I was constantly asked by media and my students from HKUST and CUHK on 2 key questions:
- “what is a virtual bank?”
- “what’re the best practices we can reference from global examples?”
Let me share my views here and welcome your thoughts!
What is a virtual bank?
Virtual bank’s primary objective is to promote financial inclusion and bring better customer experience, in particular to retail customers, including individuals and SMEs.
Virtual bank, under the guideline from Hong Kong Monetary Authority (HKMA), is a fully licensed banking entity, implying that it can provide the same full-fledged products and services that you are experiencing with traditional banks. The regulatory and compliance guidelines are identical, such as Deposit Protection Scheme is covered to safeguard the interest of retail customers. However, virtual banks are not required to open a physical branch but could operate experience centres to serve customers in a different manner.
What're the best practices that we can reference from global examples?
N26, Revolut, Monzo and Starling are some leading examples of challenging banks in Europe, accumulating more than millions of users and reach unicorn status in a few years. They provide a user-friendly experience for core banking products via mobile App, to serve primarily digital-savvy segments.
I have summarised 3 best practices for their successes and I expect virtual banks in Hong Kong will follow a similar journey.
A. Putting customers at heart of their design
Virtual Banks need to create product and services to solve customer’s pain point or create additional values to their existing offers. They have to design a superior customer experience, i.e. seamless on-boarding, application and servicing journey
B. New business model, focus on partnership to accelerate development
Virtual Banks work with non-banking players to provide ecosystem services, integrating banking products into customer’s daily life and tapping into partner’s existing customer base accelerate for inorganic growth
C. Leverage modern tech stack, micro-service architecture development
Virtual Banks can achieve quicker product iteration, testing and deployment cycle by adopting this greenfield approach, free from the integration between legacy systems where traditional banks face
In my next blog, I will talk about why we’ve decided to apply for Hong Kong Virtual Bank license and our journey. Stay tuned!