Hong Kong is getting ready to welcome in a new era of smart banking. Earlier in May, financial regulator HKMA (Hong Kong Monetary Authority) began accepting applications for the licence of virtual banks. The license would allow banks to operate online across the city without setting up physical branches.
Since August 31st, the deadline for the first batch of applications, twenty-five corporations have already put through their submissions. Interest for the licenses have come from many different sources, aside from global banks, fintech companies and telecommunications operators are also showing an interest in the new opportunity.
Standard Chartered Bank and WeLab are among some of the confirmed applicants. The authorisation of virtual banking in Hong Kong is a step towards greater convenience and flexibility, stepping in line with the global trend of digitisation.
The move to usher virtual banking into Hong Kong is aimed at opening the platform, and through encouraging financial inclusion, virtual banks will be subject to the same regulations as that of traditional banks. HKMA stresses that the goal is to increase competition and to improve the banking experience for consumers while still making sure to build a solid foundation for the long-run. As such, it is a requirement by the HKMA that virtual banks looking to set up in Hong Kong will need a minimum of HK$300 million in capital, a regulation applicable to all licensed banks, stipulated in the Banking Ordinance.
HKMA has also stated that while virtual banks may not need to spend heavily on building and staffing branch networks, they will be required to have a physical office within Hong Kong that will function as a point of customer service, dealing with potential complaints and queries, a further measure to protect consumers.
Applicants for the license are required to provide an exit plan, to ensure that the virtual bank may unwind in an orderly manner if necessary. Other requirements by the HKMA is that virtual banks should play an active role in promoting financial inclusion, therefore not imposing any minimum balance requirements or low-balance fees on customers.
Virtual and digital banking in Asia
The demand for digital banking has been steadily rising. With much of today’s generation, organising and curating their lives over a smartphone and other smart devices. Customers are starting to ask for more flexible services and solutions that align with their everyday lives.
In Asia, there has been an evident shift towards digital channels for daily transactions as opposed to the traditional approach of physical branches. Banks that successfully tap into the digital usage and behaviours of customers have a clear advantage as it means increased customer engagement. Nowadays, customers may be using the bank’s digital platform to perform a multitude of tasks, from bill payments, and peer-to-peer transfers, to balance checking and more.
According to research by McKinsey, digital transactions are up to five times more frequent than branch transactions across developed areas of Asia. Many people across Asia are also showing an openness towards virtual banking, with 35-40 per cent stating that they would be willing to shift their wallet to a digital-only proposition.
Providing better service
Does this shift for the digital mean the elimination for the human touch? In fact the opposite may be true. As traditional and virtual banks compete over market share, the determining factor for success will be on the companies with a digital platform that can better serve their customers. This means a more intuitive platform with companies improving their digital marketing capabilities, to increase acquisition and engagement, as well as generate value for consumers through their digital platform.
A real challenge for banks as the market moves into this new era of digital banking platforms will be in satisfying the quickly rising expectations of their clients. The increasing difficulty banks face, is not in competing with the likes of each other, but with tech giants like Amazon, Alibaba, and Tencent, who have already so seamlessly integrated their business into consumers’ everyday lives.
The real challenge
The digital era today is changing the fundamentals of how we interact with banks. One thing that’s clear for banks today, as they aim to compete in an increasingly digitally driven market, is the need for the right talent. Banks will have to significantly deepen their technology expertise. This will mean a transformation in the workforce as companies drive the demand for technologically skilled professionals. To continue to compete and innovate, banks will be competing with traditional rivals and tech giants for the top tech talent.
The two major challenges for banks regarding workforce will be in first, identifying the right skills and experiences required for the company to stay competitive, and also in attracting and retaining the right talent.
Identifying the right talent
Reportedly, 62 per cent of senior leaders in the banking industry feel that the digital talent gap has been widening in recent years. The war for talent is further affected as both Hong Kong and Singapore experienced record-low unemployment rates earlier in the year.
Due to the shortage in talent, companies will have to be smart in their approach. Traditionally, recruitment and talent acquisition has been about finding the perfect fit for the needs of the business, this meant companies needed to have a clear picture of the type of expertise they needed. However, at a time of change and uncertainty, the key to success may lie more in finding talent that can quickly adjust and adapt to the needs of the business and accurately anticipate the needs of the consumer.
Attracting, retaining, reskilling
As mentioned earlier, banks will have to be prepared to compete with tech giants and startups for the top talent. Not all is lost however, as both parties have something unique to offer. Moving forward, companies will be pressed for a better understanding of their brand in order to make an appeal to the top talent out there. Reality is, both parties have their advantages in attracting gifted professionals. While tech companies and startups may be able to provide greater upside or skin in the game, banks on the other hand can win over potential candidates with their stability and global appeal as well as their holistic benefits package.
A big part of this movement into digital banking will also be in the successful transformation of the current workforce. Though is it still unclear how much of the current workforce will be affected, we can predict that advanced automation and digitisation of banking will drastically change the existing structure of employees. As the situation stands right now, it is easier to see the job that will become redundant than the resulting new jobs which may be created. This means, banks will have to strategically plan for the reshaping of their workforce, reskilling employees to meet the needs of the future.
According to Arthur Yuen Kwok-hang, deputy chief executive of HKMA, the first batch of licences for virtual banks in Hong Kong may be issued as soon as the end of this year or the first quarter of 2019. On the whole, Hong Kong may already be behind when compared to the likes of other locations like Singapore, with DBS and other organisations already making headway.
Not long from now, leaders will be facing the demands from the technological transformation of the banking industry. This will call for good HR and talent management skills as businesses face both technical and adaptive challenges. As competition rises, there will be great pressures on banks to produce better services and solutions, customised to the needs of the consumer. This will mean bank leaders will have to elevate their strategy, with an outlook on both the business and talent in order to stay in the game.