Virtual Banking – A new era of banking is here to take flight…

In all of 2019, the term virtual banking, digital banking or NEO banking have created considerable excitement in the industry.  Banks as we have known them have been around for centuries and play a pivotal role in the development of every economy.  It can be argued that while they have contributed greatly to economic development, a combination of tight regulations and limited competition have curtailed innovation.  This is fast changing with fintech investments soaring globally.  Governments around the world see an opportunity to unleash a new wave of innovation by opening up the sector.  The issuance of licenses to virtual banks is one such key growth driver.  The biggest opportunities for the virtual banks will be:

• Serving the 1.8 billion global unbanked customers
• Addressing the pressing concerns of small and medium businesses
• Embedding financial services seamlessly into to lifestyle of digital consumers

What is virtual bank?

Virtual bank is a bridge in the direction of development between the services provided at branches and internet banking. With virtual banks customers can expect a combination of best practices of self-service in mobile channels and direct “at the window” service. This is a new channel of communication with the client.

The client interactions and directions are changing with virtual banks. Onboarding to experience everything will become digital now where the client contacts the bank employee virtually, through video, audio and chat channel. This makes the smartphone or tablet becoming the primary tool in use for the client-bank communication. Virtual banks also make banking easier and with a regular banking feel like through information kiosks, or multi-functionality or transaction terminals. The system typically uses the existing banking infrastructure. Thus, Virtual banking perfectly suits the present-day customer segments with the new reality of being Mobile and be able to achieve constant access to bank advisors anytime, anywhere.

It’s great to see considerable action in Asia re virtual banking:

• Hong Kong – Hong Kong Monetary Authority (HKMA) has announced a grand total of eight virtual banking license recipients, in three separate announcements so far. Despite the rumoured 29 hopefuls vying for the license, it’s likely that HKMA will only be granting licenses to at most, eight applicants.
• Singapore – The Monetary Authority of Singapore has announced they will issue five virtual banking licenses and it will include two full digital banking licenses, and three digital wholesale licenses that will specifically cater to SMEs and other non-retail segments in Singapore
• Oceania: There has been a flurry of activity in the last 12 months with the emergence of digital only banks or NEO banks. Many of these banks started their operations from mid 2018 and quite a few are launching in the coming weeks.Forerunners include Bendigo and Adelaide bank, Xinja, 86400, Judo (an SME focused NEO bank) and Volt
• India: Singapore’s banking giant DBS Bank launched Digibank in April 2016 – a move that has enabled it to penetrate the Indian retail banking market. Digibank has over 1.5 million customers and it is handling them with 60 people rather than the 400-500 staff members
• South Korea: South Korea’s Financial Services Commission (FSC) will resume a new round of procedures for granting preliminary approval for digital banks in 2019. There are currently only two digital banks in South Korea: Kakao Bank and K Bank
• Taiwan: Taiwan has granted its first three virtual banking licenses to consortia backed by investors from Taiwan and Japan as it looks to speed up innovation in a market resistant to change.
• Malaysia -Bank Negara Malaysia is contemplating that it would come out with the requirements for virtual bank licensing by 2019. About 10 parties have expressed interest in setting up virtual banks in the country

At Tetherfi, we have been fortunate to serve some of the world’s best banks in their digital transformation journey.  The emergence of the virtual banking licenses allows many of the largest banks to expand their horizon and enter new markets with a digital first approach.  It also will bring in a new set of market participants, from the startup world, from the tech world.  We are excited at the prospect about serving all these companies with robust, compliant and scalable solutions that can enable to increase the access to financial services to all segments of the market.  A new era of banking is just beginning.  An entirely new market is opening up.