The Hong Kong Monetary Authority (HKMA) recently announced eight new virtual banking licenses in the market, and their operators will all launch new digital-only banks there before or in early 2020. Here’s what we think is happening:
- HKMA’s objective is clear: disrupting traditional banking and improving digital CX for Hong Kongers. Traditional banks were quick to dismiss the March 2019 announcement of the first four virtual banking licenses as a nonevent. In the days and weeks that followed, their executives commented that such teams coming from local startups and existing banks would not succeed in disrupting the market — even though Zhong An was in the first batch. But then HKMA issued a new batch of licenses in May, and the four new names — Ant Financial, Ping An, Tencent, and Xiaomi, four of the largest and most successful digital platform players in China — sent shivers down the spines of those same executives.
- Customers are willing to switch. Of the 1,000 online Hong Kong adults we researched earlier this year, 18% said they would consider switching to digital-only banks within the next two years; about 38% said they would likely not switch. This was before any of the virtual banks launched their digital-only value propositions and leaves about 44% of Hong Kong customers sitting on the fence. Also interesting is what keeps customers from switching: It’s not for security reasons or because they love their banks — it’s because they expect switching to be a painful process. Suffice it to say that this does not seem to be a strong reason for customers to remain loyal to their banks.
- Incumbents’ mobile apps are not ready. Early this year, we benchmarked the usability and functionality of the mobile banking apps of five banks in Hong Kong: Bank of China, Bank of East Asia, DBS Bank, HSBC, and Standard Chartered Bank. The results weren’t pretty: None can compete on equal footing with the mobile banking apps of Chinese banks such as ICBC, China Merchants Bank, and Ping An Bank. In particular, Forrester identified some clear areas of weakness in incumbents’ self-service and money management functions. In terms of usability, three of the five HK banks we reviewed have not met customers’ demand for better navigation and search experiences on their mobile apps. We expect virtual banks — and not only the ones linked to Chinese digital giants — to dramatically outperform banking incumbents’ mobile apps.
- Hong Kong banks have less than two years to up their digital CX game. Forrester Research tracks digital-only banks across the world, and we have noticed that it usually takes a few years for these banks to attain critical mass (see the Disrupting Finance: Digital Banks report). Amazing success stories like KakaoBank are unique. We expect that virtual banks in HK will start launching digital-only propositions in early 2020, if not before. Of course, not all of them will succeed, but the operators linked to and empowered by mainland China-based digital giants will certainly have an advantage with strong, modern technology stacks and unfettered customer obsession for customers, as well as insights-driven operating models. We expect to see strong results appear sometime in 2021.
The good news is that most banks have started to react. The other good news is that Forrester can help with data and insights, frameworks, and best practices, as well as consulting and CX training and certification plans. These assets and services will help you prepare your troops and equip them to successfully compete and defend your market share against digital disruptors.
To dive deep into the insights for HK retail mobile banking and consumer insights, please see this series of HK retail banking reports:
Also, for a deeper analysis of the financial services customer in Asia Pacific, download Forrester’s complimentary guide.