With the Covid-19 pandemic speeding up digitization, and the Guandong-Hong Kong-Macau Greater Bay Area (GBA) boosting connectivity, Chinese big name players in technology and banking are generating buzz in the Hong Kong virtual bank industry by applying for licences, hoping to capture opportunities in cross-border wealth management and payments.

Airstar Bank, Chinese electronics giant Xiaomi’s virtual bank, was launched early this month in collaboration with AMTD, a Hong Kong-based independent investment banking firm. The bank, whose shares are 90% owned by Xiaomi, got its licence last September.

And another big Chinese tech player, ByteDance, is tapping into the virtual banking industry. ByteDance the owner of popular TikTok is said to be reaching out to OCBC Bank in Singapore in a bid to get a virtual banking licence, while Chinese e-commerce giant Alibaba’s Ant Financial is said to be applying for a licence in Singapore. It already has one in Hong Kong.

Hong Kong has been generating buzz in the virtual banking space since the Hong Kong Monetary Authority (HKMA) started issuing licences last year. Airstar Bank was the second in the market following the launch of Chinese online insurer ZhongAn's ZA Bank in March this year.

With Chinese regulators seeking more cross-border fund flows in the GBA and better connectivity in the financial sector, the budding virtual banks see this a potential significant boost for their businesses.  

According to ZA Bank, with the GBA project maturing, virtual banks in Hong Kong should be able to capture opportunities in areas such as cross-border wealth management, cross-border investment management, and cross-border payment.

In addition to ZA Bank and Airstar Bank, the HKMA has already issued licences to six institutions, the majority of whom are either backed by or under Chinese names such as Alibaba, Tencent, JD.com, PingAn, Bank of China Hong Kong, and ICBC Asia.

On top of the Chinese names’ momentum in the Hong Kong virtual banking industry, traditional Chinese banks are aggressively expanding their business as well, using Hong Kong as a gateway.

“We are seeing more mainland Chinese banks looking to set up operations in Hong Kong as a stepping stone to the rest of the world. By 2030, we may also see some mainland Chinese banks, headquartered in Hong Kong, become major regional banks for Asia, competing with other international players in the region,” says Terence Fong, partner, head of Chinese banks, Hong Kong, KPMG China.

According to the Hong Kong Banking Report 2020 issued by KPMG this week, Hong Kong’s role as an international financial centre, and the gateway for international banks and capital to invest into mainland China and for mainland Chinese capital and businesses to invest abroad, will remain through to 2030.

“With mainland China continuing to open up its financial services sector and removing restrictions on foreign ownership, we expect to see more international financial institutions seeking to enter the market or expanding their presence onshore,” Fong points out. “We are already seeing US and other international banks seeking to invest in and obtain licences to operate in mainland China.”