by Scott Bales

With the recent approval by the Hong Kong Monetary Authority to issue virtual banking licenses to a number of non-banks, it signals a strong and clear message to incumbents globally… the market has run out of patience, and it’s time regulators open the door to the companies that continue to build impactful, valuable and insightful products.

Despite hundreds of millions of dollars in investment, incumbent banks globally have done little to change their ways. We still see the standard checking account used to lead consumer experiences in a world where internet access is above 90% in most G20 nations, and mobile penetration isn’t far behind.

HKMA Virtual Banking License Media Brief

HKMA Virtual Banking License Media Brief

The approval of licensing of virtual banks in Hong Kong threatens domestic and international players in the traditional banking industry. The Virtual Banking License offered by the Hong Kong Monetary Authority (HKMA) allows entities to deliver banking services mainly through digital channels rather than physical branches, thus disrupting the customer experience and offering customers a solution that is faster and more convenient than traditional banking services.

However, the HKMA (n.d) virtual banking guidelines state that the virtual banks will also be subject to the same supervisory requirements which govern traditional banks, with a few exceptions to adapt to the virtual bank’s business model. It is outright clear that virtual banks are more focused on building innovative and sophisticated technology platforms.

Ping An, Tencent, Xiaomi, and Alibaba are among the eight digital banks granted approval to operate in the region.


Many customers of traditional banks across the globe feel that their banks are not meeting their needs (Horebeek & Chan, 2018). Consequently, all regions across the globe have made efforts to facilitate increased innovation in their banking industries. This includes the Virtual Banking System that has accelerated the speed of innovation in the banking industry in Hong Kong and across the globe.

Therefore, licensing of virtual banks is a right step towards making banking more accessible to virtually all individuals across the globe. With a digital device and internet access, customers will easily carry out transactions from any location and at all hours of the day, unlike in traditional banking that tends to offer limited hours of operation.

Licensing of virtual banks will be transformational for the finance industry, so banks across Europe, the U.S., and other parts of the world must make either incremental or drastic adjustments to their business models in order to survive. This is because virtual banks are expected to facilitate financial inclusion, a unique and personalized customer experience, as well as financial innovation (Bray & Yiu, 2019).

Even in regions where many traditional banks serving customers, virtual banks will spur competition and innovation as customers switch to the more convenient banking systems. This should motivate the traditional banks to implement radical innovative business strategies for survival (Deloitte, 2014). But that was 2014, and very little has changed. Many of the companies now gaining licenses didn’t existed in 2014.

The weakness of traditional banks is they still measure their reality using old metrics, like NII, Margin, Defaults, etc. These are internal numbers, and have zero value to the customer. Companies like Ping An, Tencent, Xiaomi, and Alibaba were born customer centric. Hence why they continually product products and services that exceed the customers' sense of value.

The decision by the HKMA is just the start, it signals they’ve listened to the needs of the market, and waited long enough for the incumbent banks to change their ways. With Asia a pioneering force in digital transformation and innovation, this decision will accelerate consideration being made by regulators deep in the heart of the global banks, Europe and the US.

45% of Americans, 62% of the British, and 67% of the Hong Kong population believe that banks are not meeting their needs

Despite $100 millions in investment, are traditional banks really that ‘digital’?

Despite $100 millions in investment, are traditional banks really that ‘digital’?

Customers are now used to engaging directly with companies and to their needs being anticipated across a range of products and services offered by a company. They therefore expect similarly integrated and personalized services from their banks, and this is something that digital banks can offer them with ease.

However, the question remains as to whether this licensing initiative is sufficient to make digital banks the top players in the banking industry worldwide, whether they can address all customer needs, and whether other regions and banks across the globe can effectively emulate the Hong Kong licensing strategy so as to gain competitive advantage. It also signals to global banks that they must become more enterprising in their business processes in order to retain their competitive edge in the industry.

One thing is for sure, the new licenses mean Ping An, Tencent, Xiaomi, and Alibaba can deepen their share of wallet within their existing ecosystems, offering financial experiences currently beyond the imagination of bankers who will likely response with a unsuccessful ‘defence’ campaigns.

If I were advising the boards of the European banks, many of which are already facing an uphill battle, I’d say; The time has come to make some tough calls, the timing is urgent and critical, the wold ways must be thrown in the bin. The primary goal now is to develop a genuine customer centric culture, or face a painful decade of decline. This culture must be embedded before you try to build yet another ‘digital’ division lead by traditional bankers.

Investment Banks with Retail Arms should immediately explore deploying capital into blank canvas ventures that can grow faster than the incumbent brand can alter course. And if you need justification, the data has been sitting under your nose for a decade. Just look at your current customer spend on the tech companies, these transactions, and likely deposits are about to walk out the door.

Are you ready?


Bray, C., & Yiu, E. (2019, May 9). “Hong Kong issues four more virtual bank licenses to spur innovation and disrupt bricks-and-mortar financial services.” Retrieved from

Deloitte. (2014). Banking disrupted: How technology is threatening the traditional European retail banking model. Retrieved from

Hong Kong Monetary Authority. (n.d). Authorization of virtual banks. Chapter 9. Retrieved from

Horebeek, S.V., & Chan, A. (2018). Virtual banking and open banking: Comparing digital disruptions across the world. Retrieved from