Over the last year, there has been a rapid acceleration in the virtual arena, from contactless payments to online banking transactions. If you have yet to enter a virtual bank, this refers to the ability to access a bank account online without having to make a physical appearance at an actual bank. In 2017, Norman Chan, then Chief Executive of the Hong Kong Monetary Authority (HKMA), announced that virtual banking in Hong Kong was one of seven initiatives to usher in a "new era of smart banking." (HKIB Annual Banking Conference). Since then, ebanking has exploded with virtual banks such as ZA Virtual Bank, WeLab Virtual Bank, and Livi Virtual Bank all entering the online sphere. 

In 2019, the first virtual banking license in Hong Kong was issued to ZA Virtual Bank. Under the regulation of Hong Kong banking, they were asked to accept all clients, without setting a minimum balance requirement. Virtual banks are also required to have a physical head office in Hong Kong. 

So, what are the key differences between an online bank and a traditional bricks and mortar institution? 
 

Virtual bank vs traditional bank

The main difference between virtual banks and traditional banks which offer online services is that virtual banks do not have any physical branch presence and exist solely online. Regular online banking services usually include the ability to make account inquiries, get loans, pay bills online, and withdraw and deposit money. Virtual banks, on the other hand, avoids building rental and involves less front office employees. 
 

Key points:

Speed and 24hr-access – Virtual banks such as Airstar Bank boast state-of-the-art technology and low operating costs, which delivers speedy, 24/7 banking services rather than time spent queuing within a branch. Customers can access their account via an easy-to-use downloadable app. Banking via an app is perfect for tech-friendly users, but a possible challenge for those not used to mobile technology. These customers are in the habit of going into a branch to ask particular account questions and to deposit or withdraw funds, so it may take some clever marketing and guidance to convince them to change. 

Account Security - Because virtual banks are entirely online, they face cyber security risks more than traditional banks, who mainly utilises offline channels. To avoid this, virtual banks invests largely on anti-virus protection, firewalls, website encryption, and fraud monitoring. Customers are also asked to use a secure network and create strong passwords.

Big Data Analysis – Data that we can't process manually within the traditional banking model is known as 'big data'. Virtual banking tracks and analyses in bulk, which gives them a much better understanding of their customer base and help them personalise their offerings. Big data analysis also benefits security, as it can recognise unusual spending patterns and detect illicit activities. 

Cloud Computing - This is used to process virtual banking transactions and other related services. It uses a powerful computer so that processes such as big data analysis can happen in real-time. It also means that customers have the versatility to access their account via a computer, laptop or mobile phone. Banks such as Livi virtual bank promote that they are trustworthy and secure. Although encryption does make the cloud hard to hack, if this happened, it poses a security risk for loss of personal data and funds.

The Face of Banking – Not everyone feels comfortable moving their money around online when they haven’t met their bank manager. Virtual banking can feel limited when you have a personal enquiry to deal with. Premium banking customers seeking financial management still look for a more personal touch at physical branches, preferring to lay trust in an establishment and a representative they know well. Companies or individuals handling large sums need to feel rest assured that their money is in safe hands and, at present, traditional banks are still preferred in this sense.  

Extra Rewards – With a bit more flexibility, virtual banks such as WeLab Bank are coming up with creative ways to attract new customers, including referral rewards and higher cash rebate for frequenty used services such as groceries and ride-hailing services as well as referral rewards. Mox banking is also taking virtual banking a step further. Backed by Standard Chartered, in partnership with HKT, PCCW and Trip.com, they combine the expertise of a well-established international banking group with the city’s major telco provider and Asia’s leading online travel agency to offer appealing user benefits. 

SME-friendly – Traditional banks may tread with extra caution when it comes to loans for SMEs, but with virtual banks, they are more open to SME potential, enabling new enterprises to realise their ideas and grasp time to market opportunities. 

Traditional banking offers a friendly face that is hard to compete with online and for those who find technology a challenge, there is always someone to help within banking hours. But virtual banking’s ability to access big data results in far more flexibility. They can present attractive offers to draw in new customers and keep them content. In our world, many things are available at the touch of a button, but yet people still seek the necessity of physical communication. In short, virtual banking and traditional banking looks to co-exist in the near future.