Virtual Banking and Beyond

In June 2021, the Hong Kong Monetary Authority (HKMA) unveiled its Fintech 2025 Strategy based on the understanding that the future of banking is based on technology. HKMA’s vision for fintech focuses on three areas: (i) facilitating banks’ adoption of technology; (ii) an enhanced data infrastructure; and (iii) supporting a growing digital ecosystem. A key part of this journey is the Guideline on Authorization of Virtual Banks unveiled in 2018, under which eight new banking licenses have been granted to date.

What is distinctive about the Hong Kong virtual banking initiative is the combination of criteria for licensing, namely: (i) mandating the virtual distribution of all banking services ie no physical (brick-and-mortar) branches; (ii) maintaining the explicit objective of promoting financial inclusion; (iii) an ownership structure that includes the participation of big techs and fintechs; and (iv) maintaining a risk-based and technology-neutral regulatory framework. In this paper, the Bank of International Settlements examines the opportunities and challenges presented by such a framework.