Opportunities and Challenges for Hong Kong Digital Banking – Key takeaways from Eddie Yue’s article

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Hong Kong Monetary Authority (HKMA) Chief Executive Officer Eddie Yue shared the latest on the rapid advancement of digital banking in an article posted on the HKMA website on April 19, 2022. His remarks reflect the findings of the HKMA’s first survey of banking customers through digital and non-digital channels in the second half of 2021.

In the article, Mr. Yue reiterates HKMA’s support for diversified market development for the benefit of various stakeholders in our society while safeguarding banking consumer protection. He also shares the HKMA’s next steps in fintech.

The main takeaways are:

  1. Hong Kong’s banking industry has actively driven innovation and development of fintech in recent years, providing many different services and products to customers through digital channels. The significant increase in the use of the Faster Payment System (FPS) is cited as an example.
  2. The HKMA has put in place a conducive policy framework that enables the industry to take advantage of the opportunities presented by the rapid development of technology in an orderly manner. The HKMA will continue its efforts to maintain the best international standards in areas such as cybersecurity and consumer protection.
  3. HKMA conducted the survey to better understand the latest digital banking situation in Hong Kong. The survey covered 20 conventional retail banks and 8 virtual banks in relation to the use of banking services by bank customers through digital and non-digital channels (including Internet banking, mobile applications and self-service facilities such as ATMs and smart self-service kiosks). The survey results showed that digital channels have become the main distribution channels for banking services, with significant growth in different areas:
    1. High penetration rate of digital payment services. 98% of local payment instructions processed by retail banks via FPS and real-time gross settlement were made by customers through digital channels, with only the remaining 2% being made through non-digital channels (such as branches). As for cross-border remittances, 80% were also made through digital channels by customers in the first half of last year.
    2. Digital channels have become a channel for opening large accounts. Virtual banks have largely contributed to this aspect. Among all retail banks, personal accounts opened through digital channels accounted for 39% of all new personal accounts opened in the first half of last year (up from 17% in 2019). The growing popularity of digital channels for account opening by small and medium enterprises (SMEs) has been even greater – from 1% in 2019 to 20% in the first half of last year.
    3. Applications for personal credit facilities via digital channels have also become more popular. In the first half of last year, 59% (2019: 32%) of credit card applications, 49% (2019: 28%) of card loans and 61% (2019: 41%) of unsecured personal loans have been made. through digital channels. Even for more complicated home loan applications, the percentage rose to 2.5% (2019: less than 0.8%).
    4. The proportion of investment and insurance products sold through digital channels has increased several times. During the first half of last year: (i) the increase in investment operations was almost 120%. compared to the second half of 2019; and (ii) the proportion of long-term insurance policies sold digitally increased to 12% (2019: 4%).
    5. Traditional ATMs have been transformed to enable cash withdrawals using NFC readers and QR codes. The survey shows that today, the public mostly (over 90%) withdraws cash via digital channels.
  4. The HKMA fully recognizes that banking consumer protection and fintech development must keep pace with market developments. HKMA has strongly supported the Hong Kong Banking Association and the DTC Association in revising and improving the Code of Banking Practices in December 20211. The article highlighted the following key improvement measures in the revised Code:
    1. ensure that the banks will disclosing accurate and clear product information in promotions for banking via social media or key opinion leaders;
    2. require banks to improve information disclosure local and cross-border payments, product applications and transactions, etc.
  5. The HKMA also sees public concern over cyber scams and false advertisements that appear from time to time, and require banks to issue warnings to customers and provide the public with channels to authenticate banks’ digital promotional activities.
  6. Considering the ease of access to banking products on digital channels, the article reminds banks of the “double stimulus” measure with regard to unsecured loan and credit card applications through digital platforms to help customers. avoid hasty decision-making. This helps to ensure that banks provide borrowers with material and sufficient information, as well as adequate opportunities to carefully consider the implications of their borrowing.
  7. Regarding the concern that the use of digital channels will lead to a reduction in physical banking facilities, the HKMA reiterates the principle of treat customers fairly. which is essential to promote financial inclusion. Whatever means and channels banks use to deliver services, banks should give due consideration to the needs of their different customer bases, including the elderly, people with disabilities, vulnerable customers and those who cannot use efficiently digital banking services; and providing facilitating measures and facilities. The HKMA has taken note of the banks’ efforts in this regard.
  8. Going forward, HKMA’s priorities include:
    1. development safeguards for certain new service models (like “buy now, pay later”); and
    2. launch a new revision of the code of banking practices with the sector, in reference to the implementation in the field of digital banking services throughout the world of the High Level Principles on Financial Consumer Protection published by the G20 and the Organization for Economic Co-operation and Development.

Link to article:

Hong Kong Monetary Authority – Eddie Yue on the opportunities and challenges brought by the rapid growth of digital banking transactions (hkma.gov.hk)

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