Last year the Hong Kong Monetary Authority handed out licences to eight new virtual banks in an effort to encourage fintech innovation and boost competition in the territory's banking sector.

A survey of these new entrants and the established players they are challenging suggests that banks are confident that they will not be displaced by technological changes and are in fact working enthusiastically to take advantage of the host of emerging digital solutions opening up to them.

The survey, carried out by the Hong Kong Institute for Monetary and Financial Research (HKIMR), shows that banks see fintech as an opportunity, rather than a threat, both now and over the next five years.

Many are already taking up technologies such as mobile banking, open banking APIs, machine learning, and cloud computing. However, most incumbents are not keen on applications of marketplace platforms, such as crowdfunding and lending platforms, which they fear could lead to disintermediation.

Fintech is broadly seen as a way to lower costs, improve customer experiences and expand client bases. The technology revolution is seen as a particular opportunity in area such as payments, trade financing, corporate lending, and custodian services.

The effect of fintech can already be seen, suggests the survey: banks with more widespread adoption of fintech are associated with greater cumulative reduction in cost-to-income ratio and larger cumulative rise in return on assets.

As for the future, most incumbents are confident that, through adapting to the new environment, they will continue to play a key role and will not be displaced by new competitors. Virtual banks are more open to the idea that banks and fintech firms will end up as partners or even that traditional players could get pushed out.

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