2020 is turning out to be an interesting year, with major developments in fintech and virtual banking. In this article, I share what I am most interested in in the context of location independence. This article will be updated on a regular basis to reflect new developments in the industry.
Hong Kong virtual banks
A large number of virtual banks have launched in recent months / years, in nearly every market. Of special interest to me are the 8 applicants that received Hong Kong virtual banking licenses this spring. For those who are not familiar with it, the Hong Kong virtual banking license is a full banking license, with government protection on deposits, but without the requirement to operate a branch network (only one branch is required, for customer service purposes). In practice, this means that Hong Kong virtual banks will be more secure and better regulated than more other fintech (better funded also due to the very high capital requirements for the license). Of greater interest, however, is who those 8 applicants are. Xiaomi (one of the largest tech companies in China), Tencent (the owner of WeChat), ICBC (the largest bank in the world), Bank of China (the fourth largest bank in the world), JD (one of the largest e-commerce sites in China), Standard Chartered (one of the largest UK-based banks), PingAn (the largest insurance company in the world) and ANT financials (the owner of Alipay and Alibaba). Impressive lineup eh? Just to put things into perspective, Alipay alone has more users than all of the other non-Chinese fintech companies and virtual banks in the entire world, combined.
Virtual banks and fintech in Canada
Also of interest is the launch and growth of a number of new virtual banks and fintech in Canada. The reason why this is of interest is that unlike their US counterparts, the Canadian fintech and virtual banks are not limited in terms of what they can do by an antiquated payment system (Interac e-Transfers in Canada are always instant unlike ACH in the US) and unlike their EU counterparts, they are not limited in terms of how they can make money (the interchange fees are not capped in Canada the way they are in the EU). In practice, this means that the Canadian fintech and virtual banks have the advantage not only in terms of what they can offer but also in terms of how much they need to charge their consumer for it. For example, KOHO Premium costs 9 CAD / month and comes with a local bank account number, Apple Pay, a 2% cashback, no ATM fee globally, no forex fee and a number of other useful features (such as price matching in case the price of something you recently bought dropped).
Developments in Europe
While Europe is home to a large number of fintech, it lags other regions when it comes to features, fragmentation and implementation. The feature lag is mainly due to the capped interchange rates and as a workaround, most fintech have introduced premium plans offering features similar to what is on offer in other parts of the world although with few cashback / miles opportunities. This is worrying as it goes against the idea that fintech should result in lower costs. The fragmentation lag is mainly due to the large number of countries in the EU and the high regulatory cost for fintech to roll out products union-wide. For example, it took Apple nearly four years to extend their Apple Pay service to all EU countries (they first launched in the UK in 2015 and finally reached full coverage in 2019). The implementation lag is mainly due to the difficulties in enforcing new systems union-wide. For example, implementing SEPA instant transfers is optional thus greatly limiting its benefits.
Other interesting developments