Hong Kong’s Livi Bank bets on ‘buy now, pay later’ services

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HONG KONG – In an increasingly competitive online banking market, Hong Kong’s Livi Bank is making its presence felt with deferred services that offer rapid borrower screening and collaboration with non-bank partners.

In a recent interview with Nikkei Asia, chief product officer Carol Hung said the company plans to “expand our product line to meet customer needs” by working with specific shareholders.

Livi Bank, which opened in August 2020, is one of Hong Kong’s eight online banks, known as virtual banks. Its total deposit balance reached HK$3 billion ($382 million) at the end of 2021, making it the city’s fourth-largest virtual bank.

The bank has no physical branches and aims to provide convenient and affordable products and services.

“We only had 44,000 customers,” Hung said. “Right now we have over 200,000 customers – we can feel the momentum picking up very strongly.”

The dominance of Hong Kong’s online banking industry is fiercely contested. Major players include ZA Bank, co-created by Chinese online insurer ZhongAn Online P&C Insurance and its partners; Mox Bank, affiliated with Standard Chartered; and Fusion Bank. Unable to go any further in increasing the remuneration of deposits, the competition is concentrating on strengthening services.

In the lead, ZA Bank, which had 500,000 customers at the end of 2021, is seeing its loan balances and fee income increase.

For its part, Livi Bank quickly established itself, driven by the increase in deposits. The bank has room for growth if it can incentivize customers to use other services, especially lending.

Livi Bank is distinguished by the diversity of its shareholders, led by BOC Hong Kong (Holdings), which holds 44%. The others are JD Technology, a subsidiary of Chinese e-commerce giant JD.com, with a 36% stake and Jardine Matheson, a conglomerate that operates the Wellcome supermarket chain in Hong Kong and luxury hotels Mandarin Oriental, with 20 %.

Jardine Matheson has been doing business in Hong Kong since it was a British colony and is involved in a wide range of businesses including retail, catering and property development. It has the means to deepen its collaboration with Livi Bank.

Carol Hung, Chief Product Officer of Livi Bank: “Competition is intensifying not only with online banks, but also with traditional banks.” (Photo by Nicholas Wong)

“With this combination of shareholders, we are able to focus much more on innovation,” Hung said. This includes providing financial products and services tailored to the customer’s perspective.

Livi Bank uses the banking expertise of BOC Hong Kong – a Hong Kong dollar issuer – technical advice from JD Technology and a customer base of 3.7 million Jardine Matheson users through a rewards program backed by 2,500 points of sale.

The bank is mainly pushing its deferred payment services. In May 2021, it launched “livi PayLater”, a “buy now, pay later” service which is the first of its kind in Hong Kong.

This service typically targets younger customers who don’t have a credit card, with payments due in 60-90 days. Livi Bank has changed its product specifications for the Hong Kong market, where credit card usage is on the rise. Livi PayLater is available for purchases totaling a minimum of HK$100, with payment plans ranging from three months to 36 months.

The service is available in stores that accept Mastercard and does not charge fees or interest if the balance is paid within three months. The number of applications for livi PayLater has reached 80,000. It takes about two minutes for a user to be authorized, with interest rates determined by the user’s creditworthiness.

Livi Bank calculates fees and interest based on occupation, work history and ability to pay, the latter of which relies on data from credit bureaus, according to Hung.

“We started by focusing on the core product like deposit and payment,” Hung said, noting that they had already acquired a good number of customers. “Then we will diversify our product line,” she said.

As a first step, Livi Bank developed a new loan service aimed at individuals, taking advantage of its expertise in credit screening. The streamlined service allows customers to choose a repayment period between three months and 60 months. The bank aims to make it a key revenue stream by increasing filtering accuracy.

Livi Bank has also introduced a service that allows customers to use QR codes to withdraw cash from ATMs.

Besides HSBC and Standard Chartered, two British banks, other banks targeting individual users in Hong Kong include US-based Citibank and Singapore-based DBS. Chinese tech giants, such as Alibaba’s financial subsidiary Ant Group and smartphone maker Xiaomi, initially considered expanding globally using virtual banking in Hong Kong as a launch pad. But their operations have changed drastically due to stricter control by the authorities.

The fate of players in Hong Kong’s virtual banking market could differ significantly in a few years.

Market watchers warn of the problems that virtual banks will face. “It is essential that these digital banks make this leap before their sixth and seventh year of operation.” said Christoph Stegmeier, senior partner at Simon-Kucher, a global business strategy consultancy. “The risk of failure increases exponentially at this point if the business doesn’t even break even.”

“The most important factor is to support efficient product usage and activation,” said Silvio Struebi, APAC banking manager at Simon-Kucher. “Many virtual bank customers are inactive after opening their accounts, despite high acquisition costs.”

“A superior customer experience combined with an engaging loyalty program and ecosystem will make the difference in ensuring long-term profitability,” he said.

Hung is also aware of these challenges. “Hong Kong is a very competitive market,” she said. “Competition does not only come between virtual banks, but between us and also traditional players. Whoever succeeds in the market must quickly embrace digital transformation and offer additional added value to customers.”

Livi Bank also focuses on small business financing and asset management services. It recently started offering loans to franchisees of Hong Kong’s 7-Eleven convenience store chain. It has also obtained a license to offer insurance products.

Additional reporting by Frances Cheung

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