Opportunities and Challenges for Hong Kong’s Digital Banking Services - Key Takeaways from Eddie Yue’s Article

Hong Kong Monetary Authority (HKMA) Chief Executive Eddie Yue shared latest insights on the rapid advance of digital banking in an article published on the HKMA website on 19 April 2022. His observations reflect findings from the HKMA’s first survey of customers banking via digital and non-digital channels in the second half of 2021.

In the article, Mr Yue reiterates the HKMA’s support for diversified development of the market to benefit different stakeholders in our society whilst safeguarding bank consumer protection. He also shares the HKMA’s next steps in relation to fintech.

Key takeaways are:

1. The Hong Kong banking industry has been actively driving innovation and fintech development in recent years, providing many different services and products to customers through digital channels. Significant increase in the usage of Faster Payment System (FPS) is quoted as an example.
2. The HKMA has been implementing a conducive policy framework that facilitates the industry to take advantage of opportunities brought about by the rapid development of technology in an orderly manner. The HKMA will continue its efforts in maintaining best international standards in areas such as cyber security and consumer protection.
3. The HKMA conducted the survey to better understand the latest situation of digital banking services in Hong Kong. The survey covered 20 conventional retail banks and 8 virtual banks in connection with the use of banking services by bank customers via digital and non-digital channels (including internet banking, mobile apps and self-service facilities such as ATMs and smart self-service kiosks). The survey results showed that digital channels have become the key delivery channels of banking services, with significant growth for various 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 via digital channels, with only the remaining 2% made via non-digital channels (such as branches). As for cross-boundary remittances, 80% were also conducted via digital channels by customers in the first half of last year. 
   2. Digital channels have become a key account opening channel. The virtual banks contributed significantly to this aspect. Among all retail banks, personal accounts opened via digital channels accounted for 39% of all new personal accounts opened in the first half of last year (increased from 17% in 2019). The increasing popularity of digital channels for account opening by small and medium-sized enterprises (SMEs) was even more significant – 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. During the first half of last year, 59% (2019: 32%) of credit card, 49% (2019: 28%) of loan-on-card and 61% (2019: 41%) of unsecured personal loan applications were made via digital channels. Even for property mortgage applications which are more complicated, the percentage rose to 2.5% (2019: less than 0.8%).
   4. The proportion of investment and insurance products sold via digital channels has grown multiple times. During the first half of last year: (i) the increase for investment transactions was nearly 120%. compared to the second half of 2019; and (ii) the proportion of long term insurance policies sold digitally rose to 12% (2019: 4%).
   5. Traditional ATMs have been transformed to allow cash withdrawals using NFC readers and QR codes. The survey shows that nowadays the public mainly (over 90%) withdraw cash via digital channels.
4. The HKMA fully recognises that banking consumer protection and the development of fintech must keep pace with market advancement. The HKMA staunchly supported the Hong Kong Association of Banks and the DTC Association in revising and enhancing the Code of Banking Practice in December 2021¹. The article highlighted the following major enhancement measures in the revised Code: 
   1. ensuring banks will make disclosures of accurate and clear product information in promotions for banking services through social media or key opinion leaders; 
   2. requiring banks to enhance information disclosure in respect of local and cross-boundary payments, product applications and transactions, etc.  
5. The HKMA also sees the public concern on cyber frauds and bogus advertisements that appear from time to time, and requires banks to issue warnings to customers and provide channels for the public to authenticate digital promotional activities of banks.
6. In view of the ease of access to bank products on digital channels, the article reminds banks of the “double reminder” measure in respect of unsecured loan and credit card applications through digital platforms to help customers avoid hasty decision-making. This serves to ensure that banks provide borrowers with prominent and sufficient information, as well as adequate opportunity to consider carefully the implications of their borrowing.
7. Regarding concern that use of digital channels would lead to reduction of physical banking facilities, the HKMA reiterates the principle of treating customers fairly. which is essential in promoting financial inclusion. Regardless of the means and channels that banks use to provide services, banks should properly consider the needs of their different clientele, including the elderly, persons with impairment, vulnerable customers and those who cannot effectively use digital banking services; and provide facilitative measures and facilities. The HKMA has noted the banks’ efforts in this regard.
8. Looking ahead, among the HKMA priorities are:
   1. developing protection measures for some new service models (such as “buy now, pay later”); and
   2. launching a fresh round of review of the Code of Banking Practice with the industry, with reference to implementation in the realm of digital banking services around the world of the High-Level Principles on Financial Consumer Protection published by G20 and the Organisation for Economic Co-operation and Development. 

Link to article:

Hong Kong Monetary Authority - Eddie Yue on Opportunities and Challenges Brought About by Rapid Growth of Digital Banking Transactions (hkma.gov.hk)

¹ Please refer to the Mayer Brown Legal Update titled Hong Kong’s Code of Banking Practice Revised dated 14 December 2021.

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