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HSBC's scrapping of minimum balance fee for Hong Kong clients may prompt rivals to follow as they brace for competition with virtual banks

Enoch Yiu enoch.yiu@scmp.com

HSBC is to scrap the minimum balance fee that applies to 3 million customers in Hong Kong in a move likely to be followed by other big lenders as they brace for fierce competition from a wave of virtual banks due to come online later in the year.

The monthly charge of HK$50 for small depositors with a passbook savings account and other basic accounts with a balance below HK$5,000 (US$640), has long been viewed as a penalty on some of the bank's most loyal customers. It was introduced 18 years ago.

HSBC said on Wednesday that from August 1, it will be the first bank in Hong Kong to go back to providing free basic banking services to roughly 3 million retail customers who hold its passbook accounts, statement accounts, personal and advance integrated accounts, and super ease accounts. It will also get rid of associated charges faced by small depositors, like counter transaction fees.

"More than 3 million retail banking customers will benefit from the removal of our below-balance fees, counter transaction fees and annual fees for most our personal savings accounts," said Greg Hingston, HSBC's head of retail banking and wealth management in Hong Kong. "This is a key step in reinforcing HSBC's commitment, as Hong Kong's leading bank, to promoting financial inclusion and making banking easy for customers from all backgrounds."

Hong Kong hands out first three virtual banking licences

The fee abolition will also apply to the popular HSBC Advance accounts, which currently charge HK$120 a month if the total deposit and trading volume falls below HK$200,000 (US$25,550).

"HSBC's decision to cancel the minimum balance [fee] is related to the fact that there will be eight new virtual banks set up in Hong Kong in the fourth quarter of this year," said Ben Kwong Man-bun, a director of brokerage KGI Asia. "HSBC needs to act now to persuade its millions of customers to stay on or many of them may opt for joining the virtual banks which do not charge a fee for small depositors."

Hong Kong virtual bank among Standard Chartered's digital bets

Hong Kong Monetary Authority (HKMA), the city's de facto central bank, has issued eight virtual bank licences since March. The lenders do not have a branch network, operating purely online.

The virtual banks are barred from charging a minimum balance fee to small depositors, and this is likely to be a selling point to lure customers.

"The competition will be keen when the eight virtual banks start operations. Other traditional banks are likely to follow [HSBC] and make similar moves too," Kwong said. "HSBC's young and tech-savvy customers who get used to getting everything free of charge online would not like to pay the minimum balance fee. Scrapping the minimum fee is a smart move for HSBC to keep its young customers."

Hong Kong's appeal as a virtual banking hub is about to be put to the test

Hang Seng Bank, a unit of HSBC, is also considering a plan to scrap its minimum-balance fee, according to a spokesperson.

The move was lauded by the HKMA, as it brings greater convenience and benefit to the broader public, said the monetary authority's spokesperson.

Hong Kong's retail banks had supported a service charter promoted by the HKMA to remove minimum service charges for disadvantaged customers, the spokesperson said.

"Banks should draw up their fees structures in accordance with their own corporate strategies, service models and costs," the spokesperson said. "However, the HKMA has constantly reminded banks to keep in mind the public's expectations and needs in basic banking even while they run their banks based on business principles."

HSBC said in a statement that the fee scrapping was aimed at providing "simpler and cheaper" banking services to meet with "customers' diversified banking needs" at different stages of their lives. An online survey indicates that Hong Kong bank customers use on average five different types of banking products.

The eight newly licensed virtual banks include two joint ventures separately led by the city's two note-issuing banks " Bank of China (Hong Kong) and Standard Chartered Bank.

They also include a joint venture led by China's first online insurer, ZhongAn Online P&C; a Xiaomi-AMTD Group venture called Insight fintech, and the Infinium consortium that includes Tencent Holdings, ICBC (Asia), and Hong Kong Exchanges and Clearing (HKEX).

The other three are home-grown unicorn WeLab; mainland China's second largest life insurer Ping An Insurance's subsidiary Ping An OneConnect, and Ant Financial Services' Ant SME Service.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.