By 2025, Hong Kong’s virtual banks are expected to amass 44,182 small and medium-sized enterprise (SME) customers, a client base that’s set to grow at a compound annual growth rate (CAGR) of 163.6% between 2020 and 2025, estimates Quinlan and Associates, a strategy consulting firm specializing in the financial services industry.

These figures were shared in a new report outlining the current positioning of industry players and the future outlook for the space.

According to the report, SME customer uptake will rise as more virtual banks open their doors to business customers.

Currently, only Ping An OneConnect Bank (PAOB) and Ant Bank (Hong Kong) have said they would like to service SMEs.

PAOB, which is owned by Ping An Insurance, China’s largest insurers, is the first virtual bank to focus completely on SMEs, allowing customers to open new accounts within a day through its mobile app, and get their loans approved within five days.

PAOB, which has been in operation for a little over a year now, has attracted 1,000 SMEs which have borrowed a total of HKD 1 billion. PAOB CEO Ryan Fung Yuk-lung told the South China Morging Post in September that 25% of its corporate clients could not get bank loans earlier, implying that it is achieving its financial inclusion goal. About 78% of its current clients needed to submit collateral earlier as well, which the virtual lender does not require, it added.

Meanwhile, Ant Bank (Hong Kong), the virtual banking arm of Ant Group, has developed a sharp focus on e-commerce and related businesses including logistics and import/export, leveraging its connection with e-commerce giant Alibaba and digital payment service AlipayHK.

Airstar Bank, which was founded by smartphone behemoth Xiaomi and capital markets experts AMTD Group, started out with a focus on the retail market before starting piloting this year corporate banking services for SMEs.

According to Quinlan and Associates, of the 44,000+ SME customers Hong Kong’s virtual banks will be serving by 2025, 40% will belong to the import/export segment, 17% will belong to the retail segment and 13% will belong to the professional services segment.

Overall, total SME deposits are set to touch HKD 117 billion by 2025. These SMEs will have borrowed a total of HKD 80 billion in loans. Combined with retail banking estimates, this should translate to HKD 76 billion in aggregate revenues by 2025, representing a combined market share for Hong Kong’s virtual banks of 19.3%.

Distinctions and similarities

The report also delves into each of Hong Kong’s virtual banks products and services, strategic positioning and use of technology.

According to the report, Mox Bank is positioning itself to service the lifestyle needs of affluent customers. These lifestyle categories are primarily centered around its credit card offering. Mox Bank is currently the only virtual bank in Hong Kong to offer granular budgeting tools.

Similarly, Livi is positioning itself as a lifestyle-driven virtual bank, targeting mass market retail consumers. The virtual bank has entered into an exclusive partnership with yuu Rewards Club, giving it access to more than 2,000 shops and restaurants. Other lifestyle offerings partners include Octopus, Klook and 7-Eleven.

Meanwhile, ZA Bank is using gamification to improve engagement and drive customer loyalty. Last year, it launched a new mobile game called ZA Bank, inviting customers to accept quests and earn rewards inside the game’s environment.

ZA Bank is also one of the two virtual banks in Hong Kong, alongside WeLab Bank, to provide a chatbot service. These services give them a competitive edge, allowing them to engage customers over changes in time and scale.

WeLab Bank is differentiating itself as the only homegrown virtual bank, targeting Cantonese speaking youth and leveraging its Hong Kong heritage.

Fusion Bank, the last of the eight virtual bank to launch, is focusing on cross-border services, leveraging its connection with stakeholders including Internet and fintech giant Tencent and ICBC, the largest bank in mainland China.

Besides these distinctions, Hong Kong’s virtual banks also have similarities. For example, they all utilize cloud technology, and leverage data shared across partners and sources to generate insights on customers and create personalized products and services.

Hong Kong virtual banks also streamline customer onboarding by completely digitalizing the process, allowing for 24/7 onboarding in just a matter of minutes. Furthermore, they are reinventing credit lending processes by reducing documents and interview requirements and utilizing credit scoring algorithms.