Watch out HSBC Holdings Plc. The digital banking revolution is coming to all the easy money the U.K.-based bank has long taken for granted.
Hong Kong was HSBC's birthplace as Hong Kong & Shanghai Banking Corp., and the former British colony remains the single biggest market, a source of sticky deposits and ready borrowers.
Not for long, though: The offshore Chinese city is opening its doors to app-based banks. The Hong Kong Monetary Authority, the de facto central bank, says it's received 29 applications for a first batch of licenses, with traditional players like HSBC's rival, Standard Chartered Plc, vying with fintech providers such as WeLab Ltd. for the business of digitally savvy millennials.
It can take a while for HSBC to lose its consumer dominance, but the bank will be able to improve its business as usual, as it does to Goldman Sachs Group Inc. analysts. Hong Kong accounts for an extraordinary 49 percent of HSBC's pretax profit, while the U.K., where it's the biggest bank, just 18 percent, according to Citigroup Inc. HSBC will report third-quarter earnings Monday.
The disruption could not come at a time. HSBC (including its Hang Seng Bank Ltd. unit), BOC Hong Kong Holdings Ltd., Standard Chartered Bank of China Ltd.'s offshore arm, retail lending, 77 percent of the mortgage market and 76 percent of the credit card business, according to Goldman Sachs. They hold as much as half of all deposits.
But the good times are ending. China's big banks have been opening up apace subsidiaries, eroding the market dominance of HSBC and StanChart. Chinese companies, a key borrowing base for the city's banks, are finding that the falling yuan is making offshore borrowing a lot more expensive. Already, deposit and loan growth has slowed this year.
HSBC has developed its own payments app and boosted its digital presence, so there is no immediate risk of a mass exodus of salary earners and savers to startups.
The online-only banks face limitations, too: While they are free of the overheads of physical branches, they have to reduce their ability to make money. Their only way to profit may be cross-selling products like insurance. Without the support of a strong deposit, and some may struggle, and consolidation is inevitable. Winning customers is expensive: Look at Britain's two-year-old Atom Bank Plc: Assets tripled in its last fiscal year, but losses are surging.
For all that, HSBC and the rest of Hong Kong's old guard will have to face the challenge of raising the debt. As the U.S. trade war hurts HSBC's vital China market and Brexit hangs over its base U.K., the bank can not afford to be complacent.
To contact the author of this story: Nisha Gopalan at firstname.lastname@example.org
To contact the editor responsible for this story: Paul Sillitoe at email@example.com
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and reporter.
© 2018 Bloomberg L.P.