• Virtual and traditional banks can co-exist to create innovative propositions for different customer segments by using AI and APIs to integrate lifestyle and finance
• Hong Kong is  a key part of the Greater Bay Area that has a GDP similar to South Korea with a relatively underdeveloped financial sector
• China’s opening and the internationalisation of the renminbi will prevail against current geo-political challenge

Despite the fierce competition in Hong Kong where the average customer has 3.5 banking relationships, CEO of Standard Chartered Hong Kong (StanChart HK), Mary Huen, believes that there is still room for virtual banks. She stressed that virtual banks serve a catalytic role to create innovations and new experiences for consumers, as well as to drive market development and financial inclusion. In addition to the special administrative region, virtual banks like all licensed financial institutions in Hong Kong also serve the wider Greater Bay Area (GBA) comprising Guangdong, Hong Kong and Macao. The GBA has a gross domestic product (GDP) of about $1.6 trillion, close to South Korea, but has only a relatively underdeveloped financial sector that is between 5% and 6% of GDP as compared to Hong Kong’s 20%, hence, representing enormous growth prospects.

Notwithstanding the removal of its special  trading status by the Trump Administration, Huen is confident that Hong Kong will remain a key international financial centre and gateway to China, an important engine of global growth and potentially the biggest provider of savings. She reminds companies and corporates eyeing growth opportunities in China to bear in mind that the country’s opening agenda and the international of the renminbi are multi-year trends that will prevail against current geo-political challenges

Hong Kong offers some compelling fundamentals as a launch pad to GBA and the mainland. It is a major capital centre with strong interlinked infrastructure with China, such as the stock and bond connect schemes with exchanges in Shanghai and Shenzhen. It is arguably one of the world's biggest IPO markets with a highly internationalised ecosystem,  and is evolving to capture opportunities in new areas such as financial technology and sustainable finance.

The following is the full edited transcript of the interview:

Foo Boon Ping (FBP): Tell us the strategy that Standard Chartered is adopting when it comes to dealing with digital banking, and open banking. StanChart has an interesting strategy, as with a number of other Hong Kong based banks, of investing in a virtual bank, as well as really strengthening your own virtual banking capability at the same time.

Mary Huen (MH): Let me start by giving you a backdrop, before I go into the trend. Everybody knows the banking and technology are really coming together. And it's becoming a reality. Starting in 2017, the regulator has come up with a smart banking policy. I think the readiness starts at the market. And then there is a policy readiness. I think both readiness are very important. And they're interacting with each other. So that policy readiness enable all the licensing of the virtual bank, it enabled the first fast payment system, open API (application programming interface), etc. I think the backdrop of the whole thing started with 2017, where the government, the regulator put in place some policy support. And that's how we started that.

And the first trend before virtual bank, I think is important to notice, is the open API and the client expectation, because during COVID, we actually see this trend is getting even more accelerated. The starting point is during COVID, of course, everybody has made use of the digital trend to do that banking. And we can see the adoption is increasing. And this is one of the trends. And then we can also see it accelerated the pace, even the older generation is actually becoming very tech savvy. So if you think about the backdrop is supported by the policy readiness, and then this market readiness accelerated by COVID, then it's not difficult to recognise that the client experience expectation is much higher, the client is having much higher expectation on banking, and therefore we start with the open API, which we can see a lot more integration of lifestyle and banking usage together. And that elevates the client experience a lot more. Clients are definitely expecting much better, faster, convenient banking experience.

And therefore with more client experience expectation, the virtual bank comes into existence, because it is another new business model with a new tech stack with a new brand and new partners, all coming together to bring the lifestyle integration with banking needs. And therefore clients are expecting bank to come to them rather than they come to the bank. So I think these disruption trend starts with the expectation of client experience and then evolving into the virtual bank pushing it further to another extreme that there is no physical branches, and there is only a digital engagement with the clients where the clients can conduct their business banking needs online. I think these two trends are particularly important to note. I would add to that, which is the third one is AI, artificial intelligence, machine learning. I think with more data analysis, more different client experience, you can probably see, more data can be used to create even more differentiated experience.

But the question is, there is a balance to be made, because on one hand, we collect more client data where we can use to make it more predictable, we can use to do more behavioural client model. But at the same time, we have to balance with ethics, we have to balance with the risk on privacy, ownership, fairness, transparency. So that brings me to the point of how do we really embed risk management into mitigating these emerging trends? I think on one hand, we are talking about digital development, market opening up. But on the other hand, we also need to recognise the risk management in mitigating this risk. What there could be more phishing, there could be more scams are reported on the rise, there could be more cyberattacks, potentials. But how do we really embed this into our BAU (business as usual) risk management model is something that we also need to recognise.

FBP: The question is also in terms of the sustainability of a virtual bank in the longer term.

MH: I see virtual bank is a new business model which is giving one more choice to the clients. I want to recognise on one hand digital disruption as well as the digital trend is important. On the other hand, the human side cannot be forgotten. Even when we are talking about AI and all these different new trends of digital, the human brain, the empathy, the connection of human behaviour is important and how do we train our robot is becoming important as well. So I think human digital hybrid model is one and digital model is another one and both models can exists by having had just for us to give a spectrum of different choices to the clients and also creating a different client segments.

And a client could have both traditional bank as well as digital bank, I mean virtual banks can co-exist. And in Hong Kong average clients have more than 3.5 banks, right. So having eight more banks into the ecosystem, probably is a new way to encourage competition, and encourage the virtuous cycle, where we can create new experience and new innovation. And by the way, the virtual bank is born with a purpose to create more innovation to drive market development as well as financial inclusion. So from that lens, I think it's giving a possibility for the business to accelerate the digital trend development by introducing this kind of competition.

FBP: I want to touch on the point that you raised about the integration of finance and lifestyle, and that's moving into the whole lifestyle, finance ecosystem, of platformisation. How does that play out in terms of everyone seeking to be a super app? But you know, having a very limited catchment area to actually achieve scale?

MH: I think partnership is becoming a trend, and that different partner bring to the table of what value add they can contribute is important, because the new ecosystem is about putting the client at the centre. And whether it is it banking, shopping, dining, is surrounding the client. So if you think about that, bank doesn't need to be visible as a standalone activity, it can be integrated into a platform where we provide the best banking experience to the client. And as I said, it is not about asking the client to come to the bank, but putting the bank in front of the client. And for that, what skills do we need to your question. I think, given financial, non-financial partnerships are becoming more prominent.

We also need to reflect what is the future focused leadership skills that we have to have by bringing and integrating this ecosystem because this partnership ecosystem has to create a new proposition, a differentiated experience for our clients. So if you think about that from a partnership angle, and I think bank has all these risk management and experience in the client behaviour in the past decades, just take virtual as an example, the traditional bank also have a lot to contribute to the experience to the new virtual bank. So I think the interaction between the non-financial parties as well as the banking system, if we are open minded enough to see through that partnership and bring the balls to the table, I think it is going to bring a much accelerated speed in terms of creating a new client experience.

FBP: And the digital ecosystem is all about partnership as you mentioned, how do you work with MOX for example, the virtual bank and other fintechs and other virtual banks? Are you open to more collaboration, more open to finance as a service type of offering or banking as a service where you can leverage of a potential competitor as a collaborator to serve your customers?

MH: MOX is also a competitor with Standard Chartered Hong Kong. But I think this is something that we had expected. And how do we work together with them? First of all, MOX started with having in mind a segment which is more digital oriented. And probably a segment which targets towards the younger segment where traditional SCB Hong Kong has a relatively smaller share in that areas. If you think about that, this is very complementary.

The traditional bank focus on all spectrums of clients, but the affluent strategy, as well as the mass affluent strategy of the traditional bank actually has created the experience in that segment. And the younger segment can also be tapped by MOX. In a way, we have different experience using different delivery channels to tap that market. That's number one. Number two is we have a different partnership. Together with Hong Kong Telecom, with Ctrip. They are their partners who can give us the experience in that industry.

This is something that is very important to MOX having the partners working together with them so that they can learn. What are the new trends in travel in telecommunication? What does client care about in those industries? which is very important in that ecosystem. And if that's embedded in MOX, as a competitor or the mothership, we have a dual identity of MOX, we can learn faster as well. And to have MOX, to help the mothership to accelerate in our digital experience is also an objective for us in in the very early days.

I think that will make the competition a very benign one to help each other. I think at this stage, we are thinking more about MOX and Standard Chartered. But of course, we're always open to the partnership with different virtual banks in the landscape. But I think it is too early to say now because we are just months into the launch. We just need to watch the development.

FBP: We are into almost the end of the third quarter or starting the fourth quarter. How are you looking at the prospect for the rest of the year in terms of growth?

MH: Everybody has been spending almost a year, our 2020 on COVID. So COVID definitely is making some fundamental shifts. And I want to call out a few trends that I see which are potentially the opportunities of us because we have spent a lot of time talking about, fighting COVID and getting our BCP (business continuity planning) up and running, in a way everybody has got their BCP tested these days. So think about opportunities. The first I want to call out is the increasing regionalisation. Geopolitical tension probably is not new. It is something that when we think of globalisation, this trend is calling the deglobalisation and see the rising trend of regionalisation.

This increasing regional connectivity is actually a big trend for us. And as far as this region as far as Hong Kong is concerned, I think GBA is a good example. The Greater Bay Area is a great example. By size is three to four times of Hong Kong is equal to a South Korea in size. By proximity we are very closely linked together. We have the infrastructure. If you think about the Greater Bay Area potential, we have to reflect if more social and economic linkages are going to happen in this region. Banking has a role to play to support the region.

And Hong Kong has a role to play. If I look at Hong Kong's banks, financial sector GDP is about 20% of our GDP. Whereas GBA is about 5% to 6%. So, thinking about the penetration of financial sector, there is a huge room for us to support the growth, the economic development of the region. And therefore, from that lens, we are putting in new leadership, we are investing in the region, we are investing in the financial hub.

And we are also thinking, putting in some thought leadership schemes for example, we are doing a GBA index with Trade Development Council to pulse check the business sentiment in GBA. This is something that when regional opportunity emerges, we can definitely capture this opportunity. Another one I want to call out is the supply chain. Supply chain is not new to us. We have seen the supply chain being diversified given the trade tension, and everybody is thinking of diversifying into South Asia, Vietnam. My clients are also moving to this supply chain, diversification and reorientation, but at the same time, besides that, we are also seeing the clients also thinking of, with COVID, there is strategic risk that they may need to reallocate their supply chain back to the country.

You can see there isn't only the cost lens, cost efficiency lens for clients to move their supply chain to improve efficiency, but there is also a strategic lens for the supply chain to reorient to for example, their home country. What I mean is going forward, we have to consider the different factors to rethink of the supply chain orientation and diversification. And therefore network is becoming very important. And network can be an advantage.

An example of us you know, Standard Chartered has network in 60 countries, all we need to do is just understand the different sectors of the clients and different needs of the clients and reorientate, help them tailor make their footprint using our network advantage. This is something that I think with the COVID change with the geopolitical risks ahead of us, we have to increasingly think of the macro map of regionalisation as well as the supply chain reorientation.

One more trend I want to call out, actually is our work from home, as well as our talent development trends, because our staff are getting more used to working from home. And even though we all have work from home policy before, but you can see COVID is actually encouraging the people, they now sense the flexibility. And they can take control of their time, they are more appreciative of that flexibility.

Going forward, how do we create the right environment for our talents, to feel that they are having the right ecosystem and workplace for them to build the next level of development for the industry is very important. And that brings us to also the talent development, which I can see everybody's talking about how to upskill and reskill their talents, we are also doing that. And one thing we are doing is to work together with the University of Hong Kong to have a partnership on training and bringing up technical skills as well as soft skills of our new generation so that we can increase the workforce to be more future ready for the next trend, post-COVID or digital trends.

FBP: Despite COVID-19, China is still growing. But at the same time, you have trade tension. You have now US taking away the special economic status of Hong Kong. So how much of a counterweight is that to the growth in China? And how is that impacting your various segments, your retail, your global clients, and more importantly your SME customers?

MH: I want to start with that backdrop that Hong Kong, we are going through the perfect storm. We started facing the challenges on different fronts starting last year social unrest, and then we have China-US trade tension, and then COVID and now geopolitical tension. So, in a way, I caught a perfect storm or stress test. During this time, we have seen the resilience of Hong Kong, a very stable US dollar peg, Hong Kong dollar remaining very strong.

We have the liquidity, where we see the deposit growth, and we are seeing capital market also picking up especially, we have the strong pipeline of homecoming IPOs. In a way, there is no complacency on that, but we have seen the banking sector, the financial sector has come together with very strong resilience. This is the backdrop and this is no different from the past, we have sailed through crisis like Lehman Brothers. Asian financial crisis, SARS, etc. People always ask me, “How do you see the future of Hong Kong?”

I see Hong Kong as an international financial centre status is going to remain. And exactly in your question you call out China, how's the China relationship, China opening and what is the opportunity in different sectors. I said Hong Kong will continue to remain as the international financial centre is to begin with China will remain the engine of global growth and the biggest provider of savings. And if there are companies and corporates who want to grow in China, China's opening agenda and renminbi internationalisation is a multi-year trend.

So as long as someone is looking to assess China market, Hong Kong has a few good fundamentals to offer. We are the capital centre for the financial gateway, we have the infrastructure like stock connect, bond connect, and we are the world's biggest IPO market with highly internationalised ecosystem, things like that are going to stay. But how are we going to make sure we evolve in capturing these opportunities, like fintech, which I talked about, like Greater Bay Area, which I talked about.

There are also future capabilities that we need to capture, for example, green finance is also a high agenda. Everybody talks about the sustainability agenda, green finance and ESG (environment, social and governance) investments, this is going to attract a lot of attention. And with the pandemic, we see there is a greater realisation that Black Swan events can indeed happen, and the financial sector needs to prepare to play a bigger role there. I think these opportunities are relevant to all segments. The GBA is relevant to all segments. Fintech is relevant to all segments and the awareness of sustainability, ESG is more important.

And that is also related to the social capital, which I believe you are very familiar with that we don't only need a banking licence, we need a social licence and how we support the community, how much we are aware of the financials of climate risks, which can eventually turn into financial risk is becoming more important. These are new capabilities that in the aftermath of COVID, we have to evolve from the previous strengths to build new muscles, new strengths into the areas of fintech, of cross-border, of ESG for us to continue to fuel the growth for the future.

FBP: In the short term, what are some of the risks you are most concerned about?

MH: I think given the overall economic backdrop, of course, we do see high unemployment rate, we do see some of the corporates, especially the SME struggling in this environment, and banking is part of the economy. So, of course, we cannot say while the economy is struggling, the banking is all good, we are part of that. And we also see these other risk areas coming up. But one thing is we have been having a very strong fundamental in the industry in last decades, working together very well with the regulator, that in a way, we have quite a benign and strong fundamentals to begin with, which is very important to help us weather what we are facing now.

When we are seeing the SMEs struggling, the banking industry also comes together with the regulator to come up with relief measures to support the industry. And I think this is important, first of all, when everybody is struggling, and when we do benefit from some of the past strong fundamentals, banking needs to give back to make sure we are supporting the community. And as I said, it is not only about banking, but it's about the social licence, the social capital, that we also need to be part of the society to be contributing to earn us the right to have clients banking with us. I think these themes are becoming more prominent going forward. And COVID is just a first test of everything.

FBP: How do you see 2021? You already mentioned where the opportunities are, what the headwinds to look out for?

MH: I think 2021 is going to be a year of resilience testing and transformation. I think what we are seeing in terms of the overall economy, outlook is not going to suddenly turn a V shaped rebound.Of course, we expect some headwinds going forward. What we have gone through the resilience of 2020 we have to continue this kind of resilience going forward. But all these macro trends that we are seeing and internal trends, external trends that we are seeing, I give an example the macro trend of geopolitical tension is not going to go away, interest rate is going to stay low. We are under margin compression. And we are also seeing the cost pressure is going to increase when we are seeing new models.

All these are going to stay but the winning or losing depends on how fast we can transform in the middle whilst we are all being tested in the resilience. So the transformation that we mentioned just now to capture the process or the opportunity, to transform to be a more agile digital organisation, as well as to make sure we stay upfront, at the forefront in terms of all these sustainable agenda to win the community support and win the hearts and minds of the clients are important ingredients that will help us to stay. There is no quick answer to that. But that resilience with the speed of transformation, and staying ahead requires a real, open mind and change mindset of everybody. And this is how, what we say financial players and bankers need to become in our future focused leadership definition.

BP: StanChart Hong Kong, and Greater China itself is a significant contributor to the group's overall revenue, income. StanChart Group continues to be run out of London. How much pulse of the ground and impact is it getting? Talk about the leadership in StanChart going forward.

MH: I think we are always very mindful. And we're always a promoter of diversity. And from that lens, that diversity applies to both the network and talents and leadership. And that is important. If you recall the trends of Be it a regional play, or helping our clients to reorient their supply chain, these kinds of mindset, having the leadership to be mindful of the diversification, in terms of network as well as talents will really help us to bring our strengths together.

And of course, the balance on localisation as well as the standardisation is important because some things are not, some of the trends are more local, which we have to call out in the country. But there are also trends which are global, which we can borrow experience of the network and make sure we can have it replicated, for example, MOX, when Hong Kong has the first virtual bank, it is a portable model to other countries. The same applies to other countries, when there are some global trends, we can pick that up immediately. So I think that awareness of diversity and advantage of that network is really helping. So it is something that we will continue to do. And this is something that has been helping us all.

FBP: Thank you so much for speaking with us.