Technology adoption continues apace, but full-scale digital transformation will require banks to rethink how they operate

Banks in Hong Kong have been on their digital transformation journeys for several years now and have had some success, especially on the retail banking side. Progress has been clearly visible in areas such as the virtual onboarding of new customers, the Faster Payment System (FPS) and rapid iteration of mobile banking apps – making banking services more seamless. With more mature technologies in this space, it is easy to see why the new virtual banks in Hong Kong have tended to focus on retail banking.

While banks have adopted technology to streamline commoditised, high-volume, low-complexity areas like payments or day-to-day banking, it is also clear that many are not yet using technology to truly transform the way they do business and rethink the role of a bank in society. This is illustrated by the adoption of open banking in Hong Kong. Open banking facilitates the sharing of information between banks and third-party service providers and will enable the creation of new services for customers. However, aside from a few trials, developments so far have been few and far between.

In corporate and investment banking, we have seen a degree of technology adoption, but we would not call this a full-scale transformation that makes processes fully automated and autonomous. In 2022, we expect banks to become a lot more digital on the corporate banking side, particularly in their offerings for small and medium enterprises. They could potentially expand into areas such as supporting their customers’ back office operations. This trend is already visible in mainland China, where some banks have begun to form ecosystems with their customers.

We also expect that the Fintech 2025 initiative will provide renewed impetus for digital transformation at banks. This initiative has been launched by the Hong Kong Monetary Authority (HKMA) to drive fintech development and the adoption of technologies such as artificial intelligence, machine learning and big data. A first impact has been that banks need to complete a questionnaire to determine current and planned fintech investment. This is forcing banks to think about what fintech means to them and how it will change the way they operate.

In 2022, developments around central bank digital currency (CBDC) will be on the radar of most banks in Hong Kong. Major banks will be thinking about how they can be a leader in this space and how to use it to recapture the market that has been lost to digital payment services over the last few years. Smaller and mediumsized banks will be considering how to link their infrastructure with this future payment method.

When it comes to fintech, nurturing talent will also be a key focus for banks as there is a clear skills gap combined with high demand for qualified staff. It will probably take a few years to resolve this, although it is worth mentioning the launch of the Enhanced Competency Framework on Fintech by the HKMA in December 2021. This initiative aims to develop a sustainable pool of fintech talent for the banking industry and raise the competencies of existing fintech practitioners. Current talent shortages are triggering some banks to invest in or acquire fintech companies in the region to strengthen their fintech capabilities. We expect more banks to be open to this approach over the coming year.