The traditional concept of why an institution is a bank is that if it is authorized to accept deposits and make loans, and is subject to regulatory oversight, then it should meet the definition of a bank. It was something. These “banks” also need to present a sense of psychological safety and security so that depositors can feel confident in keeping their money there.
Although so-called virtual banks meet the former technical criteria, much can still be done to increase consumer trust. This is especially true now that online fraud is prevalent and increasing every year.
This is the main reason why the Hong Kong Monetary Authority is planning to replace the term “virtual bank” with “licensed digital bank”. A one-month consultation session has begun.
That move is coming soon.
People have been accustomed to online banking for a long time. Virtual banks are a logical extension.
They certainly took off, reaching a total of 2.2 million customers by the end of last year, a 20% increase year-over-year. Total deposits for the same period increased by 23% year-on-year to HK$37 billion (US$4.7 billion), while loans increased by 19% to HK$19 billion.
Revenue for the first half of last year was HK$530 million, almost double the previous year.
The coronavirus pandemic has been a godsend for virtual banks, as hundreds of brick-and-mortar banks closed their doors and more people worked from home. Unfortunately, online fraud is also on the rise.
In the first quarter, the number of fraud cases surged by 55.2%, generating HK$900 million, and local residents suffered HK$20 million in losses due to online fraud, phishing, phone fraud and all forms of cybercrime. Just last year, JPEX allegedly defrauded more than 1,600 local investors of HK$1.3 billion by claiming to be operating an unlicensed cryptocurrency trading platform.
Its name was similar to the Chinese translation of “virtual bank.”
Such banks should offer more innovative and convenient online services than traditional banks. In fact, it is prohibited to have physical branches.
Pass the savings on to your customers without incurring high overhead costs. They could go even further by establishing security parity with traditional banks.
