Hong Kong’s virtual banks should serve Web 3 companies better, says top crypto advocate

Virtual banks in Hong Kong should make greater efforts than traditional brick-and-mortar lenders to expand their services to capture a larger share of assets in the Web 3.0 sector, according to a lawmaker.

“The government has made efforts to develop virtual banks and upgrade services over the past few years,” Johnny Ng Kit-Chong, a member of the Hong Kong legislature known for his support of cryptocurrencies, told a media briefing. “This is an important time for the city to contribute more to the Web 3.0 sector in the next two years.”

Ng’s call for action follows the Hong Kong Monetary Authority’s (HKMA) decision this week to halt issuing additional licences for branchless banks, giving the city’s eight licensed operators space and time to grow. The eight licensed operators together had assets of HK$49.9 billion (US$6.4 billion) last year, just 0.3% of the assets held by all retail banks, according to HKMA data.

Got questions about the biggest topics and trends around the world? Get answers with SCMP Knowledge, our content platform with explainers, FAQs, analyses, and infographics from our award-winning team.

Virtual banks have been established in Hong Kong with a mission to encourage fintech adoption, innovation and competition. By keeping their operations virtual, they save on the overhead costs of running physical branches, which can cost up to HK$1 million to operate, according to the city’s banking guild.

Johnny Ng Kit-chong, a member of the Hong Kong Legislative Council known for his supportive stance towards cryptocurrencies, speaks at the Bitcoin Asia conference on May 9, 2024. Photo: Matt Haldane alt=Johnny Ng Kit-chong, a member of the Hong Kong Legislative Council known for his supportive stance towards cryptocurrencies, speaks at the Bitcoin Asia conference on May 9, 2024. Photo: Matt Haldane>

None of the virtual banks had turned a profit. But Ng said the potential was “tremendous” and he expected them to be loss-free by 2026.

Ng said one of his growth areas is meeting the needs of Web 3.0 companies by helping them open accounts and facilitating digital asset services. Most companies that deal with cryptocurrencies, non-fungible tokens and all aspects of blockchain face difficulties in opening accounts at virtual banks, with 40 percent of them saying the task is “extremely difficult,” Ng said, citing a survey conducted by his office in August.

The requirement that company directors or board chairmen be based in Hong Kong and strict standards for term deposits are two frequently cited challenges, the survey said.

The story continues

Ng added that the accounting issue had a “fatal impact” on Web 3.0 development, and that some companies had moved from Hong Kong to more suitable locations because of the issue.

He noted that the government should have a specific plan for Web 3.0 development, and Chief Executive John Lee Ka-chiu could provide guidance on this issue in his upcoming policy speech.

Of course, some progress is being made. Standard Chartered-owned virtual bank Mox Bank launched a cryptocurrency exchange-traded fund (ETF) this week, becoming the first virtual bank in Hong Kong to offer trading in spot bitcoin and ether ETFs.

“We aim to enable our customers to explore these new digital investment opportunities and diversify their portfolios,” said Barbaros Uygun, CEO of Mox Bank. “Going forward, we will further expand our innovative offerings to deliver an enriched digital banking experience, particularly in emerging sectors, with a focus on financial inclusion.”

This article was first published in the South China Morning Post (SCMP), the most authoritative voice on China and Asia for more than a century. For more SCMP news, please check out the SCMP app or follow SCMP on Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.