For all its touted benefits, digital banking requires a reliable and trusted track record that not all SE Asian countries offer.

In view of the fact that almost three quarters of Southeast Asia cannot claim to have a bank account, financial inclusion is one of the expected upshots of virtual banking. The idea is that, by eliminating the hassles of visiting a physical bank, financial institutions can encourage more people to grow their savings and take advantage of modern services. 

However, virtual banking in all its forms, does harbor caveats. It does not even matter which country you are from. 

For example, in the Philippines, a Congressman who is also the Chairman of the Committee of Ways and Means has filed House Bill 5913, which provides a regulatory framework for virtual banking. Rep. Joey Salceda, who has been called “the principal taxman in Congress” by one newspaper due to the numerous tax bills he has filed, expects virtual banking in the Philippines to grow into a PhP903 billion (around US$17,815,520,000) industry. Salceda’s House measure is in line with the Central Bank of the Philippines’ thrust to boost financial inclusion

Will virtual banking click with the populace?

Now for the caveat. A survey made by the Central Bank of the Philippines, however, revealed that 46% of Filipinos distrust online transactions; so how can you expect to go fully digital with virtual banks? 

Even in the United States, a survey of 1,000 respondents revealed that 75% still believe that physical banks matter. Some 70% had gone to a physical bank branch at least once in the past month.  Granted, it is also worth noting that according to the study, 44% of millennial and Gen Z customers would like to start and finish applications to open an account without ever walking into a bank. That is a significant piece of data that would seem to be relevant in other countries, as well, like the Philippines. There, a TV advertisement is going around right now: it features an old man taking a photo of a check and then sending the photo to his bank in place of a physical check. This is an example of digital banking offered by one bank in the country.

Are virtual banks here to stay?

In Hongkong, ZA Bank is the first digital-only bank to offer a 6% deposit rate. The worry, after enticing customers with such promotional rates, is if the virtual bank is able to maintain such rates. As a spokesperson for the Hongkong Monetary Authority (HKMA) stated: “While the monetary authority will not interfere with the commercial decisions of individual institutions, it would be a concern if a virtual bank planned to aggressively build market share at the expense of recording substantial losses in the initial years of operation without any credible plan for profitability in the medium term.” 

For its part, ZA Bank has stated that it would provide 24/7 services to clients, something that physical banks do not offer. So, if you post a question on the bank’s social media page after banking hours, you get a reply to wait until the next banking day. That’s one up for virtual banking.

How do other countries view virtual banking? In Taiwan, the first set of virtual banking licenses was awarded in August last year. A spokesperson for one of the virtual banks stated that operating costs of an online bank—including the use of automaton and AI—are significantly lower than those of traditional banks.  In Singapore, where five digital banking licenses will be obtainable, it was reported that digital banks would compete with traditional banks for Small and Medium Enterprises (SME) space. In India, purely digital loan companies are required by the Reserve Bank of India (RBI) to have one physical presence accessible to customers. In Korea, there are two online-only banks but their market share is still small and is expected to remain so, with traditional banks offering their own digital services.

Given the examples above about unreliable digital infrastructure and unrealistic expectations, are virtual banks going to succeed in the countries with the most unbanked populations?

It can be gleaned from the examples above that in some countries, excitement and hype have followed the trail of virtual banking. Whether that excitement is warranted or virtual banks would just flounder is anyone’s guess. Factors like regulation, competition with established brick-and-mortar banks, and lower operational costs come into the picture.

Ultimately, only time will tell if virtual banks are just good ideas with expiration dates in the places that are not ready for it. Granted, if virtual banking is the road to normalized financial inclusion in the countries that need it most, that is well and good. Just make sure that the infrastructure proves ready for the hype, and that the unrealistic expectations are met in a timely manner. Otherwise, we will just have to wait and see.