Analysis: Asia's tech champions zero in on main street banking

Boc Hong Kong Holdings

15/04/2019 01:30

* Hong Kong has issued four virtual banking licences 
    * Taiwan, Malaysia, others, working to allow digital banks
    * Asia consumers more willing to bank with tech firms - Bain

    By Alun John and Sumeet Chatterjee
    HONG KONG, April 15 (Reuters) - Asia's internet firms are
challenging the region's traditional banks for consumer
finances, tapping their massive user networks for business and
following a trail blazed in China by tech giants Alibaba and
Tencent.
    The push into banking by companies better known for their
messaging apps, cute emojis and online holiday bookings comes as
regulators across Asia open up their banking sectors to a new
breed of digital players.
    The shift is in its infancy but contrasts sharply with the
banking markets of Europe and North America, where change is
slower and such startups tend to be backed by venture capital
funds and financial sector incumbents, not tech firms.
    Asia's tech entrants see their advantage in the way they can
seamlessly integrate banking services with their users' regular
online activities and the efficiency that comes from their
technology.
    "If you want to open a bank account (in Hong Kong) you need
to go to a branch, answer questions for an hour, and you still
won't get the account opened without follow up calls," said
Wayne Xu, president of ZhongAn International, a unit of Chinese
online insurer ZhongAn  6060.HK , setting up a virtual bank.
    "However, all the information needed at the counter can
already be collected on a mobile phone."
    Hong Kong's banking regulator last month issued one of four
so-called virtual banking licences to ZhongAn in what could be
the biggest shake-up in years in a city dominated by HSBC
 HSBA.L  and Standard Chartered  STAN.L . Last week, the
regulator said on it was making progress on four additional
applications.  urn:newsml:reuters.com:*:nL8N21S2KW urn:newsml:reuters.com:*:nL3N21E28U 
    In South Korea, authorities have issued two online only bank
licences, one of them to Kakao Bank in 2017, which is operated
by the company behind the country's largest chat app.
    "The 45 million monthly average users of our messaging app
Kakao Talk is a huge plus for us when advertising our bank," a
spokesman for Kakao Bank said. He added the bank uses Kakao's
artificial intelligence technology for its automated customer
support systems. The bank had 8.9 million users as of March.
    Other Asian countries set to approve online-only banks
include Taiwan – where a group led by a unit of Japanese
messaging app operator Line Corp  3938.T  has applied for a
licence - and Malaysia, which plans guidelines by the end of the
year. Bank of Thailand Governor Veerathai Santiprabhob said the
central bank was exploring the issue.
    "Large technology companies are seeing this as a land-grab
opportunity where they can build out new sets of financial
services that can be cross-sold to their existing users," said
Jeff Galvin, a Hong Kong-based partner at McKinsey.
        
    DIGITAL ASIA
    Driving the shift in Asia is mobile technology's deep
penetration across all aspects of consumer life.
    Such trends were forged by Alibaba  BABA.N  and Tencent
 0700.HK  in China where the two upended financial services and
drove a revolution in the cashless economy with their digital
payment applications.
    In contrast, U.S. tech giants such as Amazon  AMZN.O  and
Alphabet Inc's Google  GOOGL.O  have focused their financial
industry efforts on providing tech and consulting services to
incumbents.
    Asian consumers are far more willing to bank with tech firms
than elsewhere in the world. 
    More than 90 percent of consumers under 35 in China and
India would bank with a technology firm, according to Bain
research, compared to 75 percent in the United States and just
51 percent in France.
    The online-only banks in Hong Kong plan to start-off by
offering services such as savings accounts, credit cards,
personal loans and travel insurance.        
    "What we are seeing in Asia is technology companies moving
sideways into finance, inspired by or even threatened by the
examples of Alibaba and Tencent," said James Lloyd, partner and
APAC fintech leader at consultancy EY.
    In Asia, the emergence of tech gains in the banking sector
comes at a difficult time for the region's incumbents who have
begun reassessing the vast branch networks that, until recently,
were seen as their competitive advantage.
    The number of bank branches in Hong Kong, Japan, Malaysia,
South Korea and Thailand has declined in the last couple of
years, dropping by between 1 percent and 7 percent in 2017 from
2015, according to the International Monetary Fund. That
compares with growth of as much as 8 percent a decade ago.
    To be sure, legacy banks in Asia have their own plans to
stay relevant in the changing space with some tying up with new
rivals.
    Among the new Hong Kong digital banking licensees is a joint
venture between StanChart, Chinese holiday booking giant Ctrip
 CTRP.O  and local telco PCCW  0008.HK .
    "We think that the ecosystem we can build together will be a
great integration of lifestyle into banking," Mary Huen chief
executive of StanChart Hong Kong, and chairman of the new
virtual bank, said at a press conference.

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 (Reporting by Sumeet Chatterjee and Alun John; additional
reporting by Heekyong Yang in Seoul, Liz Lee in Kuala Lumpur,
Chayut Setboonsarng in Bangkok; Editing by Jennifer Hughes and
Sam Holmes)
 ((sumeet.chatterjee@thomsonreuters.com; +852-2847 2094; Reuters
Messaging: sumeet.chatterjee.thomsonreuters.com@reuters.net))