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Hong Kong virtual bank operators say price competition is likely temporary

Virtual banks in Hong Kong should focus more on expanding their product types than just offering high-yield savings accounts despite intensifying competition, operators of online-only lenders told a conference.

Hong Kong has granted eight virtual bank licenses since 2019, so far only ZA Bank Ltd. launched the service. On Jan. 13, the unit of ZhongAn Technologies International Group Ltd. said it would offer interest rates of up to 6.8% for three-month Hong Kong dollar deposits as part of its soft launch. That would be higher than the rates of between 1.9% and 2.3% offered by brick-and-mortar banks such as HSBC Holdings and Standard Chartered, according to the South China Morning Post.

Simon Loong, founder and CEO of WeLab Holdings Ltd., another virtual bank licensee, said at the Asian Financial Forum in Hong Kong on Jan. 14 that using price competition to attract new customers is likely a temporary move.

"[It] is a short-term strategy … Over the long run, banks need to win customers with services and products," Loong said.

He added that the lender plans to launch its service this year, whereas others have not announced when they will begin their operations.

Rockson Hsu, the CEO of ZA Bank, said at the same forum that so far the soft launch was well received among customers. Over the long run, Hsu expected the lender to diversify its products and services with the support of its parent group, which is the largest online-only insurance company in China.

Frederic Lau, CEO of Airstar Bank Ltd. another virtual bank licensee that is a joint venture between AMTD International Inc. and Chinese electronics company Xiaomi Corp. said during a separate panel in the same conference that virtual banks in Hong Kong are "at a disadvantage" when competing with traditional banks due to their smaller sizes and weaker brand recognition.

"In the short term we will not be able to overcome [the challenges] but over time we will be stronger with more products and services," Lau said.

The closing of the gap between virtual and traditional banks will depend on how soon virtual lenders collect data and expand their operation based on big data, Lau added.

Lai Zhiming, chairman of Fusion Bank Ltd., another virtual bank licensee that is a joint venture between Tencent Holdings Ltd., Industrial & Commercial Bank of China Ltd.'s Industrial & Commercial Bank of China (Asia) Ltd., Hong Kong Exchanges & Clearing Ltd., also said the lender plans to differentiate itself by offering more financial services and products, including insurance and securities products.