Futu Holdings on the Way to Offer Virtual Banking Services in Hong Kong

HKMA has already approved eight licenses for digital banking this year. The Tencent-backed brokerage firm may be the next in the race to provide the service.

Author: Anna Vodopyanova   

Futu Holdings Ltd. (Nasdaq: FHL) seeks to be among the first FinTech companies to offer virtual banking services in Hong Kong, the protest-ridden former British colony that has been opening up to innovation and competition to spur growth.

Futu, the tech-oriented online brokerage firm, which completed its initial public offering on Wall Street earlier this year, operates an app for trading in stocks, warrants, options and exchange-traded funds (ETFs). The app, called NiuNiu, allows investors to trade in Hong Kong, mainland China and New York.

Futu also offers enterprise services, among which are pre-IPO solutions and employee stock ownership plan (ESOP) management services.

This year, the Hong Kong-based company, backed by tech conglomerate Tencent Holdings Ltd. (HKEX: 0700), is strongly focused on expanding its business domestically and internationally.

Already, it has unofficially launched a trading app in the U.S. called MooMoo, free of commission at its early, testing stage. In addition, Futu's U.S. entity, Futu Clearing Inc., has been granted membership as a U.S. broker-dealer by the Financial Industry Regulatory Authority (FINRA). The membership includes the capacity to provide clearing services in the United States.

Futu's chief financial officer, Arthur Chen, said in an interview with CapitalWatch that a number of other expansion plans are in the works. Getting a virtual banking license in Hong Kong is one of them.

The city has been opening up to digitization and welcoming competition in the retail banking business, which, according to the Financial Times, is worth $15 billion.

While a few incumbent FinTech companies have been granted approval to provide virtual banking services, only one license was issued to a homegrown firm, making Futu, which saw the number of its paying users in Hong Kong double in the first quarter, the possible second.

So far, the Hong Kong Monetary Authority (HKMA) has approved applications for virtual banking from a number of entities backed by some of the market leaders in Hong Kong and mainland China.

In May, HKMA announced four winners. One was Ant SME Services (Hong Kong), operated by Ant Financial, an affiliate of giant Alibaba Group Holdings Ltd. (NYSE: BABA). Another was Ping An OneConnect, an entity of Ping An Insurance Group (HKEX: 2318), while the third was Insight Fintech HK, a joint venture of AMTD Group and Xiaomi Corp. (HKEX: 1800), in which the latter holds 90 percent, as reported by Fintechnews HK.

The last was Infinium, a JV set up by Tencent, Industrial & Commercial Bank of China (Asia), operator of the Hong Kong stock exchange Hong Kong Exchanges & Clearing, Hillhouse Capital and Hong Kong investor Adrian Cheng.

At the time, the companies said separately that they expected to launch virtual banking services in Hong Kong within six to nine months.

Earlier this year, HKMA announced the approval of virtual banking licenses for Livi VB, SC Digital Solutions and Zhong An Virtual Finance. The first is owned by Bank of China (Hong Kong), JD Digits and Jardines; the second is a joint venture of HKT, PCCW, Ctrip Hong Kong and Standard Chartered; and Zhong An is a JV of ZhongAn Online and Sinolink.

Lastly, Hong Kong-based unicorn WeLab, backed by business magnate Ka-Shing Li, became the first domestic firm to be granted an approval.

HKMA said the licenses were a "milestone" for the city. Norman Chen, HKMA's chief executive, said in September that the move marked the start of a "new era of smart banking" in Hong Kong.

HKMA has been considering approximately 33 applicants for virtual banking licenses.

Shares in Futu closed at $11.37 apiece Wednesday, up 6 cents from yesterday's close.