Hong Kong's first virtual bank offers 6% rate for select depositors

ZA Bank is one of eight firms preparing to start digital-only banks in Hong Kong.
ZA Bank is one of eight firms preparing to start digital-only banks in Hong Kong.PHOTO: AFP

HONG KONG • The first of Hong Kong's new generation of digital-only banks has announced its arrival with a 6 per cent introductory rate for deposits.

ZA Bank, one of eight firms preparing to start digital-only banks in Hong Kong, has begun a trial run that pays a select group of depositors over 3 percentage points more than banks such as HSBC and Standard Chartered.

Though many observers doubt the new virtual banks will be able to maintain such rates, the offer is a warning of upcoming competition for the city's US$410 billion (S$552.8 billion) local currency time deposit business.

"This is more of a gimmick, which shouldn't become a norm," said treasurer Terry Siu at CMB Wing Lung Bank, which pays 3.8 per cent to new savers for two-month Hong Kong dollar deposits. "But competition for funds is indeed getting higher as eight more banks are coming out."

ZA began a pilot last month for the city's first digital-only bank. It is offering the 6 per cent rate for three-month Hong Kong dollar deposits capped at HK$200,000 (S$34,700), according to a person with knowledge of the matter.

The accounts are set at a 2 per cent rate, but offer a top-up of as much as 4 per cent to select clients, the person said. Standard Chartered, HSBC and BOC Hong Kong Holdings pay 1.9 per cent to 2.3 per cent.

Several groups of companies including Chinese giants Ant Financial and Tencent Holdings were granted licences to operate virtual banks last year by the Hong Kong Monetary Authority (HKMA).

The launch comes amid tensions stoked by pro-democracy protests in the former British colony that show few signs of abating.

Deposit rates could stay elevated as the unrest persists amid concerns over money outflows.

So far there have not been any signs that cash is fleeing the city, although banks have said some clients are inquiring about opening accounts elsewhere as a precaution.

ZA's rate stands in stark contrast to parts of the developed world, where central banks have slashed key rates below zero, forcing lenders in some cases to pass negative rates on to retail customers. In Denmark, where rates have been negative the longest, a bevy of banks now charge depositors.

  • $553b

    Value of Hong Kong's local currency time deposit business, a slice of which eight firms preparing to start digital-only banks are eyeing.

Deposit rates are also lower among other Internet banks globally. Monzo in the United Kingdom offers deposit rates of about 1.3 per cent, while Australia's uniquely named 86400 pays 2.25 per cent on some deposits.

A spokesman for ZA, a unit of ZhongAn Technologies International Group, declined to comment on the rate, but said it will roll out new offerings in stages.

ZA has said it will provide users with a "full suite of services 24/7", allowing customers to open an account in five minutes with just a Hong Kong identity card.

An HKMA spokesman on Friday said it notes that some banks may offer "promotional" rates to some customers, while emphasising that banking products are commercial decisions.

"While the monetary authority will not interfere with the commercial decisions of individual institutions, it would be a concern if a virtual bank planned to aggressively build market share at the expense of recording substantial losses in the initial years of operation without any credible plan for profitability in the medium term," she said.

Virtual banks are similar to traditional retail banking services in that they will be able to accept deposits and give out loans. But they are not expected to set up physical branches, which will keep costs down.

Bloomberg Intelligence (BI) anticipates the new banks will find it difficult to make inroads into the city's loan market, likely grabbing just a 1.5 per cent share by 2025, since they will be held back by challenges in attracting deposits and high costs for interbank funding.

BI senior analyst Francis Chan said Hong Kong's "citizens are less inclined to adopt new fintech offerings, as they are accustomed to comprehensive services offered by global banks such as HSBC and Citibank".

He added: "Online lenders may find it difficult to tap new customers, partly due to the dominance of credit cards and Octopus (stored value) cards."

Senior foreign exchange strategist Alan Yip at Bank of East Asia is sceptical about the rate being offered by ZA becoming a trend.

"Traditional banks are taking a wait-and-see approach now as the virtual banking business has yet to make a splash," he said.

"The market impact shouldn't be very significant yet as they will need time to develop, therefore, the higher rate may not become a trend soon."

Nevertheless, competition is heating up for a rich vein of the financial hub's banking industry. Goldman Sachs estimated in 2018 that US$15 billion, or 30 per cent of the city's total banking revenue, is up for grabs.

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A version of this article appeared in the print edition of The Straits Times on January 14, 2020, with the headline 'HK's first virtual bank offers 6% rate for select depositors'. Print Edition | Subscribe