Lower fees, snazzy branches: Hong Kong banks gird for online-only onslaught

Lower fees, snazzy branches: Hong Kong banks gird for online-only onslaught

Reuters  | Aug 14, 2019 05:39

Lower fees, snazzy branches: Hong Kong banks gird for online-only onslaught

By Sumeet Chatterjee

HONG KONG (Reuters) - Hong Kong's biggest banks are set to cut fees, boost digital services and jazz up branches with features such as touch-screen display panels to meet competition from new online-only lenders in one of the world's most profitable banking markets.

As many as eight so-called virtual, or online-only, banks are set to be launched in the Chinese territory this year, posing the biggest challenge in years to a stronghold for lenders including HSBC (L:HSBA) and Standard Chartered (L:STAN).

The expected moves show how keen traditional banks are to protect their cash cows even with a short-term hit to their profits, at a time when their growth elsewhere faces hurdles due to an intensifying U.S.-China trade war.

And though the virtual lenders are expected by analysts to make only a dent in the business of the incumbents, the big banks are unwilling to take any chances, given that the new breed are backed by some of China's biggest firms, including Alibaba Group Holding (N:BABA) and Ping An (SS:601318).

In an acknowledgement of the looming competition, HSBC said in June it would waive fees on accounts without a certain minimum balance. The British bank said the move was to promote financial inclusion. StanChart, Hong Kong-based Bank of East Asia (HK:0023) and others followed with similar moves.

The old guard is also expected to vie to raise deposit rates, further pressuring their profits, people with knowledge of the matter said.

"The moves will certainly have an impact on the bottom line, but hopefully it will not be very significant and we would be able to offset that by increasing the business volume over a period of time," said a senior banker at a foreign bank.


Hong Kong is a highly profitable banking market. Return on equity for leading Hong Kong banks ranges from 6.5% to 15%, versus 1.1-13.4% in Asia, 0.4-9.2% in Europe, and 8.6%-15.8% in the United States, as per Refinitiv data.

HSBC made $3.4 billion in pre-tax profits from its Hong Kong retail banking and wealth management operations in the first half of this year, accounting for more than a quarter of the bank's entire profits for the period.

The bank, which has about a 30% share of retail deposits in Hong Kong, has been bolstering its own digital capabilities, its Asia Pacific head of retail banking and wealth management, Kevin Martin, said.

"We're very aware that competition is increasing and our customers' expectations are changing and we will ensure we continue to invest ... to meet these challenges and needs."

StanChart's $1.9 billion first-half operating income in Hong Kong represented a quarter of its total operating income. The bank is leading a consortium that has won a virtual banking license.

"As competition increases, there will be some pressures on fees and charges, which will be good for customers," said Samir Subberwal, StanChart's regional head of retail banking in Greater China and North Asia.

"But we believe that banks, as well as the new virtual banks, will be sensible in pricing and discipline on financial management," he said.

Bank of East Asia declined to comment. The people declined to be identified as they were not allowed to discuss specific plans.

The new online-only banks include those set up by consortia led by affiliates of e-commerce and payments powerhouse Alibaba, insurer PingAn, and smartphone maker Xiaomi (HK:1810), as well as Bank of China Hong Kong.

The digital banks plan to begin by offering services such as savings accounts, credit cards, personal loans, foreign exchange and travel insurance. They also promise account openings in just four minutes, an eye-catching claim in a city where customer complaints about account opening difficulties are common.

The key threat, however, is that their lower overheads will enable them to offer sharply lower or zero-fee services, said the sources.

Hong Kong banks earn huge fees levied on retail banking services. Morgan Stanley (NYSE:MS) estimates the total fee pool was $9 billion in 2018, broadly flat over the last five years.


Banks including HSBC and Citigroup (N:C) are also looking to shift more customers to digital platforms and have been revamping the physical branches to make service delivery efficient and interactive.

Citi, for example, plans to soon launch a "digital only" banking option for its retail customers, said its Hong Kong CEO Angel Ng, to supplement its physical network. "The branches are also more akin to Apple (NASDAQ:AAPL) stores and are paper-less and hi-tech."

The virtual banks are, however, unlikely to grab a sizeable share from the traditional banks soon, analysts said. New tech-based players that entered Europe's banking and payments sector since 2005 had 6%-7% of the market in 2016, a study by consultancy Accenture (NYSE:ACN) showed.

"The incumbents will have to respond to it (aggressive fee pricing), but virtual banks still have to make money," said Tim Pagett, Asia Pacific financial services leader for consultancy Deloitte.

© Reuters. FILE PHOTO: The HSBC headquarters is reflected on the facade of a commercial building in Hong Kong

"While they don't have to carry the cost of physical branch networks, they do actually have to carry cost and they do have shareholders who have certain return expectations."

Related News

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) English (Philippines) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes


Download the App

More markets insights, more alerts, more ways to customize assets watchlists only on the App

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.