Sweden provides a cautionary digital tale for HSBC


By Sharon Lam

(The author is a Reuters Breakingviews columnist.)

HONG KONG, June 18 (Reuters Breakingviews) - HSBC , should brush up on modern Swedish financial history. A batch of online banking licences in Hong Kong opens the $166 billionUK-based lender to new competition in a market it dominates. The experience of Scandinavian giants, which include Swedbank and SEB , could be instructive as they recently lost big slugs of business to startups. And HSBC will be facing even more formidable, tech-savvy foes.

The first four recipients were online lender WeLab and ventures led by Standard Chartered , , Bank of China , and ZhongAn Online P&C Insurance . Four more went last month to groups involving Chinese tech titans Alibaba and Tencent , Ping An Insurance , and smartphone maker Xiaomi .

In a market estimated at about $15 billion by Goldman Sachs analysts, HSBC is most vulnerable. The bank led by John Flint last year generated $6 billion of pre-tax profit, or 30% of the group total, from retail and wealth management in Hong Kong. Though it has built digital wallet app PayMe, HSBC - which has not applied for a digital license - cannot afford to ignore what happened in northern Europe.

Although newcomers in Britain and elsewhere have only nipped at goliaths, technological change hammered Sweden's lumbering lenders. In 2003, they laid claim to 77% of the often highly profitable consumer finance market, according to a McKinsey analysis last year. By 2017, the proportion had shrunk to 40%, after digitally-savvy specialists such as Klarna initially expanded the market, and then poached customers from incumbents.

Hong Kong regulators are proceeding judiciously, to avoid becoming a mainland-like fintech free-for-all. New branchless entrants must establish a physical presence in the city and hold at least HK$300 million in capital ($38 million), though the average amount is higher so far. Well-heeled rivals pooling their financial and technological resources put extra pressure on HSBC, which has more to lose than to gain.

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- The Hong Kong Monetary Authority said on May 9 it had granted four online-only banking licences to units of Alibaba, Xiaomi, PingAn, and a joint venture involving Tencent, ICBC and Hillhouse Capital, bringing the number issued to eight. The newly licenced banks are expected to launch their services in around six to nine months.

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This article appears in: World Markets , Stocks , Economy , Banking and Loans

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