The banking sector in Hong Kong is notorious for its sophistication, serving as an international financial hub for decades. This isn’t only on the institutional side but also on the retail side, where 95%[1] of Hong Kong residents are banked.

Yet surprisingly for such a mature financial services market, digital transformation has been slower to hit as compared to many of its neighbors in the region. Particularly in Southeast Asia, brands like Grab and Gojek have grown to unicorn status. Compared to these large fintech markets, Hong Kong has been lagging behind. Virtual banks didn’t enter the market until 2020 and traditional banks are still heavily reliant on physical branch visits for most operations.

Yet, while digital transformation in financial services was slower to start, it has been swift in the past few years. By 2025, estimates project that nearly 20% of the market (in deposits) will be captured by eight virtual banks in total.[3] In another recent 2020 survey of HK residents, ~16% of Hong Kong adults (nearly 1M people) say they have a virtual-only bank account. Additionally, 6% of respondents say they plan to open a digital-only bank account in the next year, and an additional 6% say they plan to open one over the next five years[4]. These figures point to the rapid transformation of the banking market in Hong Kong.

Virtual Banks Are Standing Out Through Slicker Design and User Experience

While the early products offered by ZA Bank are standard for the market (savings and checking accounts, local transfers, etc.), they were able to differentiate through their user experience.

For example, during the Lunar New Year earlier this year, ZA Bank launched a one-of-a-kind red packet experience. While all banks offered ‘virtual red packets,’ ZA Bank allowed users to simulate the tradition of putting crisp, new banknotes into the “Lai See” packet by dragging the banknotes (from HKD 10 to HKD 1,000) into the red packet. Users can also give “Lai See” in pairs, which represented good fortune as the Chinese proverb said, “Good Things Always Come In Pairs.” Though simple in execution, it preserved the essence of physical red packet packing and stood out from the more traditional banks where red packet gifting followed a similar process to a standard transfer payment.

Even simple things, like monthly interest income earned, is accentuated through design at ZA Bank. This bank celebrates savings in ways that traditional banks simply don’t.

Acquire Your Target in New Ways

In such a crowded and competitive banking market, the virtual banks know they won’t acquire customers with business as usual – fee-free transfers, competitive interest rates, and other standard offers. Instead, many of the virtual banks offer incredibly attractive rewards and offers.

ZA Bank offers hard-to-beat referral bonuses of HKD$200 (US$30), as well as $1 HKD (US $0.10) account balance minimums.

Mox employs a similar referral approach and expanded its rewards program even further. By anchoring its rewards on a heavily integrated partnership program, it offers 10% cashback on emerging food delivery services (like FoodPanda), 5% cashback on certain merchants (CircleK, Amazon, HK Taxi, McDonald’s, etc.) and 1% cash back at dozens of other merchant locations.

Mindset Matters

MOX is purposefully set up and operated as a standalone entity, outside of the traditional Standard Chartered organization. This design was intentional to ensure that the ways of working and processes had greater flexibility than the incumbent legacy systems might afford. Similarly, at ZA Bank, the innovation mindset pervaded the culture in everything they did – from the way they designed the app to how they ideated new product offerings. In fact, both noted that the typical employee was recruited not from a financial services background, but from technology, start-ups or other sectors, specifically to avoid ‘incumbent bias.’

That mindset is even baked into the very name of ZA Bank, where ‘ZA’ represents a reverse of the alphabetical order – going from Z to A – to remind users to always think out of the box and view things from a different perspective.[5]

Looking Ahead

With virtual banks expected to capture 20% of the banking market in the next few years, what innovations can we expect to see?

With the increasing importance of the Greater Bay Area (GBA), the geographic area of Southern China and Hong Kong (comprised of Shenzhen, Guangzho, Hong Kong), we can expect to see more of the ecosystem-led approach that has dominated the Chinese market enter Hong Kong. Take ZA Bank, for example – co-owned by mainland online insurer ZhongAn Online P&C Insurance, we can anticipate lessons from ZhongAn’s China successes, which include five major insurance product ecosystems (health, travel, finance, auto and lifestyle insurance) serviced across 330 ecosystem partners.

Second, while the different virtual banks currently offer a similar set of basic bank offerings (e.g., cash holding, payments, transfers), we can expect more differentiation to occur with the introduction of more complex banking products. Investments, cryptocurrency purchases and loans are on the horizon in the not-too-distant future. It will be interesting to see if these innovations will help virtual banks transition from currently side bank accounts, to becoming the main salary accounts for customers.

Finally, looking ahead, we can expect the innovation being driven by these disruptors to impact the industry as a whole. While the traditional banking sector has been relatively complacent in the last few decades — with a slower digital adoption in Hong Kong than other markets — the superior customer experience delivered by the virtual banks should help motivate incumbents such as HSBC and Citi to accelerate their digital transformation efforts.