Collaboration with young generation key to virtual bank success, says ZhongAn International’s Ken Lo

Ahead of his appearance at Cloud Expo Asia Hong Kong in May, founding member of ZhongAn subsidiary says new virtual bank will ‘sit down with and listen to users to make a bank for them’

Digital insurer ZhongAn Online could launch its first virtual banking services in Hong Kong in just six months’ time, ZhongAn International founding member Ken Lo said.

ZhongAn, applying through its international subsidiary, was awarded a virtual banking license from the city’s financial regulator in March. It was one of eight major regional players who received one of the new licenses, out of a total 29 rumoured to have applied. The bank will operate under the name ZhongAn Virtual Finance.

Virtual banks, such as Monzo and Starling in the UK, offer the same services as traditional banks without operating any physical branches, and are estimated to eat as much as 30 percent into the revenues of traditional lenders in Hong Kong.

Compared to other countries, the city has been slow to welcome virtual banks into its traditional banking sector. For comparison, Monzo received a banking license in April 2017, while Hong Kong only began granting equivalent licenses to online-only banks in March this year.

Many of the city’s financial veterans, including Standard Chartered bank, wasted no time in forming virtual banking ventures once the HKMA signalled they would relax regulations, while other regional firms and fintechs, such as China-based ZhongAn, are using the opportunity to diversify and expand beyond home markets.

Speaking to Techerati, Lo said the new licenses herald a new era of financial innovation in the city:

“Virtual banking will bring something different to the Hong Kong market, not only a more digital way for the users to connect with banks, but also a better service and higher demand for the banks,” he said.

“It’s never easy to kick off a financial revolution project, especially in a mature market like Hong Kong. Even though virtual banks, challenger banks and similar started to spring up many years ago in other countries, each market varies from each other.”

Collaboration is key

ZhongAn Online, brainchild of Ping An, Tencent and Alibaba, refers to itself as China’s “first truly digital insurer” and has taken the country by storm since launching in 2013. In its first year of operation, it underwrote 630 million insurance policies and serviced 150 million clients.

Given there will be eight virtual banks launching basically simultaneously, each entrant will have to carefully differentiate its offerings to gain an edge. As a fintech of considerable pedigree, ZhongAn is well-positioned to carve out a space in the fledgling market, particularly if it blends its virtual bank with insurtech services. At this stage, however, the bank’s exact look and feel has yet to be established.

Lo said ZhongAn Virtual Finance will initially focus on providing core banking services before diversifying into “new and innovative products to better serve the young generation and SMEs in Hong Kong.”

When asked about the kinds of products it hopes to release, Lo said it is still early days. The bank plans to collect feedback from users over the next few months to shape its vision and users can currently suggest ideas on ZhongAn’s website.

“What makes us confident is how we will offer the products, which is quite different from the traditional way,” Lo said.

“First, we will apply agile methodology to create and iterate products and services, which has been verified as important for reacting quickly to the needs of the market. Second, we will sit down with the users to listen to their voices, to truly make products for them and a different bank with them.”

Success in the virtual banking space also largely depends on forging effective partnerships. As soon as it revealed the news of its successful application for a virtual banking license, Standard Chartered announced it would be partnering with Chinese travel fintech Ctrip. Lo did not reveal too many details on ZhongAn Virtual Finance’s planned partnerships but said it will leverage its parent company’s extensive Chinese network.

“Partnerships are very important for virtual banks’ development especially when the concept of the virtual bank is still new to the market,” Lo said.

“We have quite a strong gene for partnership and cooperation. ZhongAn is connected with over 300 cooperative partners in mainland China and we are very open-minded to partners of all kinds, even with banks. We’re doing very well now, and hope we can share some good news to the public very soon.”

Ken Lo will be appearing at Cloud Expo Asia in Hong Kong, May 23, where he will share his insights on the virtual banking landscape and its impact on Hong Kong.