Since the commencement of operation by the first virtual bank in the first half of 2020, all eight virtual banks have launched their business during the year. Hong Kong has now entered the era of “Neo Bank”. I believe that people in Hong Kong can feel the vitality and creativity of these new forces in the banking industry. In addition to the commonly seen new-to-bank welcome offers and rebates for card spending, virtual banks have also introduced remote account opening, numberless bank cards, virtual debit cards, collaboration with e-wallets, etc. All these lead to a new and different customer experience in using banking services.
I also admire the new ideas of banking services initiated by these “newcomers” of the industry. Recently, virtual banks have launched some more new products. What are their features? And is there anything consumers might need to pay attention to?
New Banking Products of Virtual Banks
The HKMA encourages the development of virtual banks to promote innovation in fintech, enhance user experience and foster financial inclusion. Virtual banks continuously introduce new banking products to the market, starting from deposits and credit card spending offers at the initial stage of their businesses, to some personal credit products with special features more recently. Here are some of these products:
- Deposit-linked personal loan products – When a customer of an unsecured personal loan places funds into a designated savings account at the bank, the customer can enjoy a deposit rate equivalent to the interest rate applicable to the loan. This in effect helps reduce the customer’s overall interest expenditure and provide the customer with more flexibility in his/her management of funds. While there are similar deposit-linked mortgage loan products in the market, such concept is applied to unsecured personal loans for the first time by a virtual bank.
- Salary-linked personal loan products – In order to reduce cashflow pressure, liquidity is provided to a customer a number of days in advance of their salary paydays. On the payday, the customer can choose to use his/her salary or other sources of funds to repay the amount. Similar to common loan products, if repayment cannot be made in full on time, interest will start to be charged.
- New mode of instalment payment for card spending – A customer can use this type of instalment payment plan for their spending through virtual credit or debit cards. Once approved, the customer will not need to submit a separate application for each applicable card transactions. If the customer fails to make payment on the designated billing date, the amount due will automatically be turned into an instalment loan and subject to interest charges. In this connection, I would like to note that there are also some “buy now pay later (by instalments)” services offered by various shopping or payment platforms which may not necessarily be regulated. Hence you may want to see whether these platforms provide adequate customer protection when using such services.
Ensuring Consumer Protection
Riding on fintech development, virtual banks bring in innovation in their new products and provide more diversified banking services to the public. This is in line with the HKMA’s goal of promoting virtual bank development. And at the same time, we also attach great importance to consumer protection.
Various surveys indicate that the general public is very interested in the banking services provided by virtual banks. However, it may take more time to know the details of such services and understand their new features as well as the relevant terms and conditions. The HKMA requests banks to take into account the needs of customers when designing these banking products. Banks are required to make clear disclosure of the product features and risks to customers, in particular the relevant loan interest rates and the consequences of failure to make loan repayment. Banks are also required to properly inform customers about the applicable terms and conditions, so that consumers are able to clearly understand the relevant details of the banking products and consider whether the products meet their needs. More importantly, when banks provide customers with new products, new banking services and new experiences, they must continue to uphold the principles of customer-centric services and treat customers fairly.
The HKMA issued a circular in September 2020 requiring banks, whether conventional or virtual, to provide customers with a “double reminder” when retail customers and small and medium-sized enterprises apply for unsecured loan and credit card products on digital platforms. Under this measure, banks should remind customers of, firstly, the key product features as well as terms and conditions of the credit product in general; and secondly, the key details of the product that will be applicable to the customer such as interest rates and repayment arrangements. These allow the customers to carefully assess the borrowing decision they are about to make, thereby reducing the risk of impulsive or excessive borrowing.
As the product design of the above recently launched personal credit products are relatively innovative, bank customers may not feel very familiarised with such products. The HKMA therefore requires virtual banks to enhance the related disclosures to customers. For example, regarding deposit-linked personal loan products, customers should be informed of any cap on the amount of deposits in the designated deposit account that will be eligible for the more favourable deposit interest rates, or any cap on the applicable deposit interest rates. In cases of customers failing to make repayment of card balances on due date, customers should be reminded about the starting of the term of the instalment loans and charge of interest expenses.
Some banks also collaborate with commercial corporates to provide customers with promotional offers when opening bank accounts, placing deposits or using loan products from the banks. Customers may be asked to provide personal particulars or meet certain conditions, such as having successfully recommended relatives or friends to open bank accounts, before they can enjoy the offers. In this connection, the HKMA has requested banks to increase transparency so that customers can have a clear understanding about the details of conditions for enjoying the promotional offers. The HKMA will continue to closely monitor the market development and provide guidance to individual banks or the industry as appropriate to ensure adequate protection for both existing and prospective bank customers.
Some Points to Note
On the back of new banking experience that virtual banks have brought to Hong Kong, we can also learn more about and compare the new products provided by different banks. It is also important to understand the terms and conditions of these banking products. In addition, when using loan and card spending products, attention should be paid to the applicable financial charges, the possible implications on our financial positions, and the possible consequences of over-borrowing. Be a smart and responsible financial consumer and when in doubt, ask more.
Last but not least, “To borrow or not to borrow? Borrow only if you can repay!”
Arthur Yuen
Deputy Chief Executive
Hong Kong Monetary Authority
12 July 2021
