[WORLD] After five years of building strong deposit bases, Hong Kong’s eight virtual banks are preparing to broaden their reach into the wealth management sector, a space traditionally dominated by brick-and-mortar institutions.
The strategic shift reflects growing demand among Hong Kong’s retail investors for digital-first financial solutions. According to a recent survey by the Hong Kong Investment Funds Association, more than 60% of respondents under the age of 40 prefer managing their wealth through digital platforms, citing lower costs and convenience as primary reasons. The evolving preferences of this tech-savvy demographic present an opportunity virtual banks are eager to seize.
All eight digital lenders reported solid gains in deposits, loan issuance, and net interest income for 2024. While none posted a net profit, their financial losses narrowed on the back of higher net interest margins and fee-based income from their expanding wealth management services, the companies disclosed in separate statements on Thursday.
Industry observers highlight that the absence of physical branch networks has enabled these banks to scale efficiently, offering competitive rates and innovative services. Several virtual banks have already rolled out AI-powered investment tools and micro-investment options—features that have proven particularly appealing to younger clients. However, analysts warn that as digital banks move deeper into the wealth management arena, they will encounter tough competition from traditional financial institutions and established fintech players.
The Hong Kong Monetary Authority (HKMA) granted virtual banking licenses to eight firms in 2019. While the regulator amended its policy in October to allow these banks to operate a limited number of physical branches, none have opted to do so thus far.
The HKMA’s policy adjustment aims to balance innovation with consumer confidence. Although digital banks have succeeded in attracting users online, some customers—especially older individuals—remain cautious about fully transitioning to a branchless model. The option to open physical locations may help address such concerns, though the banks appear committed to prioritizing digital expansion for the time being.
Looking ahead, tighter regulatory oversight is anticipated as digital banks expand their wealth management services. The Securities and Futures Commission (SFC) has already indicated plans to review its guidelines on robo-advisory services and digital investment platforms—a move that could shape the future regulatory landscape for virtual banking in Hong Kong.
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