SMEs should take more advantage of Digital Banking by faster and easier account opening

When the Hong Kong Monetary Authority consulted on the introduction of licensing guidelines for “Virtual Banks”, one of the issues considered was how to refer to these banks that do not have physical branches and provide services mainly through the Internet. The name “virtual bank” was finally chosen because many existing traditional banks in Hong Kong already have internet banking and mobile banking platforms, and using a similar name would cause confusion in the market. In Singapore, this kind of bank is called Digital Bank. 

In an era of digitalization, many traditional banks are now offering features that were originally intended for virtual banking only. Many banks are looking into remote account opening and opening up APIs (Application Programming Interface) so that many products and services can be applied directly online in the future. The challenge is, how can the latecomers of virtual banking differentiate themselves from these increasingly advanced traditional banks? 

The key to differentiate virtual banking from these increasingly digitalized traditional banks lies in three key areas, namely technology, target customers and products. Traditional banks rely on manpower to serve customers, and therefore prefer to allocate more resources to serve high net worth customers. Virtual banks rely more on technological research and development to reduce costs, and can use artificial intelligence to replace many human processes, such as 24/7 customer inquiries, product research, and risk assessment. With lower operating costs, they are capable to lower transaction fees for clients, which is a crucial drive for SMEs to choose digital banking over traditional banking. 

While the services provided by virtual banks are certainly promising, it is believed that the regulatory authorities will pay closer attention to how the participants of virtual banks can survive the initial cash-burning phase. Tightening regulations are demonstrated by more documentation request and longer processing time to open a corporate bank account. 

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