Alibaba or Tencent - Who will win race for 650 mn virtual bank accounts?

Technology giants like Alibaba, Tencent are entering the banking sector which offers at least 650 million digital savvy smartphone owners who use online payment methods regularly.

China’s tech giants have upended the country's payments system and promise to shake up its consumer-banking sector. The rest of the region won't be so easy.

Asia is quickly becoming the next battlefront for Alibaba Group Holding Ltd.'s Ant Financial and Tencent Holdings Ltd.'s WeChat Pay, after both secured licenses to set up online-only banks in Hong Kong earlier this month. Singapore’s welcoming regulatory environment makes the city-state an obvious entry point to Southeast Asia.

The region’s huge market could offer some easy wins. Much of its population of over 650 million are digitally savvy smartphone owners, already comfortable with ride-hailing apps like Go-Jek and Grab.

Meanwhile, inefficient bank branches, low interest rates and poor professional investment advice is trumping privacy concerns: 62% of people in developing Asian countries don’t mind sharing personal data to get customized products, compared with just 23% in wealthier Asian nations, according to a 2017 survey by McKinsey & Co.

Yet traditional lenders remain formidable competitors. Take Hong Kong: While the city has awarded licenses to eight virtual banks, three have gone to incumbent lenders Standard Chartered Plc, BOC Hong Kong (Holdings) Ltd. and Industrial & Commercial Bank of China Ltd.

HSBC Holdings Plc, which has a lock on nearly 30% of the city’s deposits, hasn’t even applied.

HSBC may have good reason to be unmoved. Together, the city’s virtual-bank contenders will have a balance sheet of just HK$150 billion ($19 billion), which would put them on par with Hong Kong’s third-smallest bank, Dah Sing Banking Group Ltd., according to Citigroup Inc.

While picking up retail customers is one thing, getting them to put large amounts of money into a virtual bank account is another. Without a big-name lender behind them, newcomers grapple with a trust deficit.

Virtual banks also aren’t exempt from frustrating know-your-customer routines, which can hinder efforts to sign up cash-heavy small and medium enterprises.

A hair salon that finally convinced HSBC it’s not laundering money will be reluctant to repeat that process. While an individual can open a virtual account in a matter of hours, the same can’t be said for SMEs, which face more onerous regulatory hurdles.

Business Standard