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The Potential of Electronic Banking

Title: Electronic banking's influence on profitability and market share in Hong Kong 

Background: Electronic Banking Evolution

Electronic banking's potential was recognised a decade ago, when important institutions started to match their product delivery mix to technologies and investigate and exploit innovative business models (Deloitte Consulting, 1998). Developments in technology, deregulation of financial sectors, the emergence of new banking institutions and economic restructuring all have a role in how electronic banking evolves. For their long-term survival and cost savings, banks are being forced to rethink their business models and cost structures as a result of changing environmental conditions. For this, many bankers saw technology as the best way to reduce expenses (Dannenberg and Kellner, 1998). Banks and clients have traditionally communicated through "Extranet banking" or "Dial-up banking," in which the consumer dials up to the bank's servers and is connected over a private network (Aladwani, 2001). Installation of specialised telecom networks and application software is necessary for these services; for example, Hexagon Banking, which is utilised by HSBC. This may be expensive and lacks flexibility for end users.

When it comes to Electronic Banking, though, it's described as "the provision of banking services over open-access computer networks (the Internet) directly to consumers' homes or private addresses." Banking firms (Mols, 1998) may profit from a larger variety of possible advantages since the Internet may not confine banks to different places or historic geographic boundaries. It is because of this that electronic banking technologies have enabled banks to consider and operate in different geographic regions with new product opportunities in new markets and marketplaces. Modern banks are interested in new fee-based revenue created through better or new services like advertising, bill presentation, alerts, notifications, and tailored information. Customers benefit from these operations because of the increased value they bring, and banks benefit because of the additional revenue and client loyalty they may obtain via relationship management (Yiu, Grant, and Edgar, 2007).

In addition to establishing and maintaining a competitive edge in the area of additional income, banks are using new technologies in order to minimise the expenses of operations and administrative administration. This comprises the maintenance of accounts, the preparation of statements, the distribution of disclosures, and the processing of other paper-based activities. It might happen at any point in the supply or value chain, from the customer's point of view to the back office or process perspective. With the use of information and knowledge management concepts, many client services may be given online at lower costs and customised or personalised, resulting in increased efficiency or effectiveness (Humphreys, 2000). Besides the obvious advantage of increasing customer knowledge and automating credit checks, this also has the ability to combine a wide variety of services, activities, technologies, ideas, and even industries.

Hong Kong's Banking Sector

According to Quinlan & Associates' strategic market assessment, the Hong Kong banking industry is valued around HKD 370 billion ($50 billion). Virtual banks are expected to take up a significant portion of this business in the years to come. With the help of the FinTech association of Hong Kong, Quinlan and Associates issued an in-depth analysis on Hong Kong's banking landscape, including the fast-growing virtual banking area. Currently, Hong Kong's licenced financial institutions generate HKD 373 billion in total income from retail, commercial, and corporate banking. HKD 10.5 trillion in loans and advances, and deposits in excess of HKD 14 trillion, account for more than two-thirds of this total (, 2021).

The Role of Electronic Banking in Cost Savings and Rethinking Business Models


As a result of their size and dominance in the market, HSBC, Bank of China (Hong Kong), Standard Chartered, and Hang Seng are the top four banks in the world. These four financial institutions control 62 percent of all deposits and more than half of the credit market, generating combined earnings of HKD 226 billion (, 2021).

HSBC is the largest bank in Hong Kong, accounting for more than HKD 95 billion. Bank of China, with sales of around HKD 36 billion, behind both Hang Seng and Standard Chartered in generating sales of about HKD 45 billion. About HKD 150 billion in income is generated by Hong Kong's 170 other licenced banks more than 2,000 lenders (, 2021).

Despite the fact that they are in a dominant position, the researchers discover significant flaws in the incumbents' argument. However large and developed Hong Kong's banking industry is, incumbents are unable to answer customer pain points because of a lack of digital platform and market expansion in the area of financial services.


The banking industry, namely Internet banking, is a plainly visible, appealing, and possibly fruitful study setting. IT and the Internet has been the subject of many studies, but little empirical work has been done to obtain the significance and importance of Internet adoption in Hong Kong's banking industry, and neither was there any evaluation of success factors to assist in the development of an effective agenda in this area (, 2020).

Rise of Virtual Banks

It is difficult to analyse the performance of Hong Kong's banks in 2020 without taking into consideration the influence of Covid-19 on the industry. Despite the fact that the epidemic has clearly had a severe influence on Hong Kong's economy, it has not resulted in a widespread financial disaster. The financial industry, in particular, has fared rather well in the wake of the pandemic's harshest effects. The implementation of regulatory measures to strengthen capital and liquidity, as well as the overall soundness of bank balance sheets, during the previous several years has shown that the banking industry in Hong Kong has remained robust. As a result of the growth in covid instances, as well as the continued restrictions and waves of covid, the predominance of virtual banks in Hong Kong has increased. The following sections discuss the general increase in the number of virtual banks in Hong Kong, taking into account the increase in the number of covid instances as well as the evolution of digitisation (, 2016).  

"Local individuals and businesses are being courted by virtual banks with attractive deposit and savings rates, substantial reward programmes, and an easy onboarding procedure," says Quinlan, a financial technology analyst. Challengers are focusing on certain areas of the incumbents' offerings, such as savings, deposits, loans and payments, in order to get a foothold within specific market sectors. There have developed eight major virtual players, each offering a narrow range of services: There are a number of other financial institutions worth noting as well: ZA, Airstar, WeLab, livi, Max, Ant, PAOB, and Fusion Bank (, 2020).

Advantages for Banks and Customers


With flat interest rates and heavy debt, they have a lot of potential during economic crises when incumbents are suffering. With earnings of HKD 76 billion, HKD 560 billion deposits, and more than 380 billion loans, virtual banks might account for slightly under 20 percent of Hong Kong's banking sector by 2025.

There are a few roadblocks, the most significant of which being the low confidence in virtual banks comparing to the strong trust in established institutions. For the time being, just 1.9 million of Hong Kong's 7.3 million residents are considering opening a virtual bank account. As a Quinlan & Associates analyst, Eashan Trehan stated, "the virtual banks will need to have a clear plan in place to win over consumer hearts and minds" in order to prosper (, 2020).

Strong branding and marketing, distinctive offers, a positive user experience, a reliable data security and privacy system, investment in the cloud to ensure stability and scalability, and talent retention tactics are all on the agenda for the next year. Alternative income sources, such as the use of client data to build value-adding agreements with third parties, are excellent news for virtual banks. So by 2025, there will be a significant opportunity, but not enough for all of the existing contenders in the market to take advantage of it. Researchers predict that Hong Kong's virtual bank market will consolidate in the near future, reducing the number of players. As Quinlan put it, "Rich pickings await the few players who can effectively manage their objective of branching out, both from their bricks and virtual bank competitors (, 2020)."

The main motivation behind undertaking this research was to see the integration of virtual banking in the market of Hong Kong, particularly from the stance of market share and profitability. This is crucial to understand in the post pandemic world, to see how technology has crept into the banking sector of Hong Kong. The reliance of technology in the daily lives of people has allowed the companies to explore a new market area, which in turn has allowed them to generate revenue streams by vying for a bigger market share, where the consumers are no longer restricted by geographical locations. The manner in which the advent of electronic banking has changed the market share and profitability of the traditional banks would thus be explored in this work.

Research Aims

The aim of this research was to understand the influence of electronic banking on the profitability and market share in the region of Hong Kong

Research Objectives

The key objectives of this research include:

  • To understand the use of electronic banking
  • To elaborate the relation between profitability and market share in context of banking sector
  • To understand the threat/ opportunities in electronic banking of Hong Kong

To understand the manner in which traditional banks and virtual banks of Hong Kong compare with each other in context of market share and related profitability.

Electronic Banking adoption impact on Banks profitability

E-Banking is a service that makes it easier to conduct banking transactions via the internet. You may transfer money or pay bills or mortgage, access the savings or checking account at any time, and so on and so forth using internet banking (Hamid et al., 2007). E-Banking not only makes banking more convenient for users, but it also saves money for banks because of the decreased need for employees and the lower costs associated with fewer physical branches.

The Current State of the Hong Kong Banking Industry

A variety of performance indicators have been used to measure the influence of internet banking on the profitability of banks, including ROE (return on equity) as well as ROA (Return On Asset). However, while there is a positive correlation between the introduction of internet banking as well as the performance metrics of a bank (Arnaboldi and Claeys, 2008), there is a time lag, which suggests that it takes some time for the benefits of internet banking to be reflected in the bank's performance measures (Onay, Ozsoz, and Ash, 2008).

A similar effect on business profitability, operational efficiency, and financing operations has been observed by earlier researches, indicating that banks that have implemented internet banking have superior performance indicators at lower costs (Malhotra and Singh, 2009). Findings such as these were backed up by the research of which found that online banking decreases the bank's overhead expenditures and increases bank profitability (Hernando and Nieto, 2007).

Aduda, and Kingoo (2012), in their study, they want to find out if the majority of debit or credit cards and ATMs that the banks had already installed has a positive effect on the number of people who use these cards and the number of ATMs that the banks have. As a result, they believe that digital banking adoption may have a beneficial influence on ROA because consumers value ease. Online banking adoption is strongly influenced by one's demographics, and studies show that nations with a younger and more educated populace are more likely to have done so. As opposed to conventional brick-and-mortar banks, online banking was shown to be more profitable in such countries (DeYoung, Lang and Nolle, 2007). Preliminary studies looked at the influence of internet adoption on profitability in the first year after it was implemented, as well as whether the deposit and credit branch benefited from it (Onay, and Ozsoz, 2013). Internet banking has been demonstrated to have a negative impact on a bank's profitability, even if it leads to an increase in deposits and loans.

Customers in poor nations are less likely to be educated and aware of the success of electronic banking, thus it's more difficult to get them to switch. Even if banks spend money on building e-banking services infrastructure, customers may be reluctant to make the move, preventing the anticipated savings in personnel and branch costs from materialising. According to scholars, banks that have implemented online banking have seen a growth in the number of physical branches, indicating that e - banking is more of an addition than a replacement for conventional branches (DeYoung, Lang and Nolle, 2007).

Factors impacting e-banking uptake in Hong Kong: Theoretical Perspective

Each of the four basic principles underlying the theoretical frameworks developed and implemented in this study is based on these four key principles, which are (1) perceived utility, (2) perceived ease of use, (3) personal innovativeness, and (4) perceived risk (Yiu, Grant, and Edgar, 2007).

The technology acceptance model (TAM) is widely used by researchers and practitioners to anticipate and understand how IT will be adopted (Lederer et al., 2000). An important benefit of employing TAM in this scenario is the ability it provides for analyzing whether or not e-Banking systems are being used according to the designers' intentions and how customers' ideas and attitudes are linked to their use of "something".

The Dominance of Major Banks and the Emergence of Virtual Banks

TAM assists senior managers who are responsible for selling and developing financial products on the internet, as well as information system developers, in predicting the behavioural intents of users in a variety of situations. When individuals think about and utilise e-banking technologies, they may modify their behaviour in a detrimental way because of this. For example, banking or technology professionals may invent new ways to suit the needs and interests of e-banking customers as a consequence of this new knowledge of the system or at the very least more insight.

In spite of the studies focusing on external problems, TAM's ability to deal with both internal and external factors remains relevant. TAM is a cost-effective method when trying to understand why certain individuals adopt certain technology while others do not. The ability to alter and develop in order to ensure that the anticipated extension of e-Banking to its operations, as described by Evans and Wuster (2000), does in fact provide reach and richness for the customer is another advantage that Internet bankers possess.

Consequently, conventional IT strategy is less effective. Internet banks may strive for first-mover advantages by establishing better 'customer-friendly' systems if they know what customers think works and what they think doesn't. There may be obstacles to entrance for competitors because of network effects and consumer lock-in, which appear to be hard to emulate. Internet bankers' decision-making processes now have a better understanding of what works and what doesn't because of TAM.

It is the degree to which an individual is more or less open to new ideas than other members of a system when it comes to innovation (Rogers, Singhal, and Quinlan, 2014) or community is referred to as "innovativeness." Early knowers of innovation, according to Rogers (1995), have many features with early adopters, such as greater education, higher social standing and other factors. Nonetheless, this does not imply that those who have previously known something are always innovators. Individuals may be aware of a new concept, but they may not consider it relevant to their position, i.e. they may not find it beneficial. On the basis of one's potential to innovate, Rogers (1995) devised the concept of adopter categories for participants in social systems. The five early adopter groups are innovators, early adopters, early majority, late majority, and laggards. There must be some similarities in the characteristics of present Internet e-Banking users in Hong Kong to those described by Rogers (1995). Use the PIIT model to explore the factors that may impact adoption of new technology in a corporate environment. As a result, while looking at variables influencing Internet Banking acceptance, innovativeness is taken into consideration (Rogers, Singhal, and Quinlan, 2014).

"Perceived risk" is the last element of the theoretical basis. According to the findings of a research conducted by Loh and Ong (1998), users' worries about security-related problems are one of the most important factors influencing the broad adoption and implementation of new system. This makes logical sense since consumers are unlikely to embrace a system if they are filled with fears and worries when interacting with it. Aladwani (2001) found that prospective consumers placed Internet security or consumer privacy as the most critical future issues that banks would face in their online banking experience.

In light of the difficulties in capturing risk as an objective truth, we define risk as the consumer's subjective expectation of suffering a loss in the pursuit of a desired goal (Donthu et al., 2021). Perceived risk on the usage of Internet Banking may have a detrimental impact on consumers' perceptions of the implications of e - Banking adoption, and hence adversely affect adoption of such technologies (Al-Qudah and Ahmad, 2013).

International banks were increasingly interested in expanding their operations in China as the country continues to open up its financial economy to foreign investment. Hong Kong is a key location for businesses in retail, commercial, and investment banking who want access to the Greater Bay Area (GBA) Wealth Management Connect, communicate their clients to the digital world on the ground, or provide access to the domestic capital markets for their clients from outside the country who want to grow their businesses in China (Abd Razak et al, 2021). Onshore digital platforms for Hong Kong residents have led to an increase in electronic banking, which has resulted in a rise in the total profitability and market share of commercial banks in the city (KPMG, 2021).

A number of multinational enterprises are still having difficulty connecting to China's massive digital ecosystem so that they may better serve their clients. Providing these enterprises with complete transaction banking services and much more frictionless payments is an opportunity for multinational commercial banks. As a result, those multinational banks that can successfully traverse China's competitive digital ecosystem will be best positioned for success in mainland China.

International banks should explore forming alliances and collaborations with local financial institutions, fintech companies, and other technological players in order to best serve their corporate customers onshore. Additionally, several banks have sought to create their own fintech business in an effort to spur development and innovation, improve the services they provide to customers, and expand their market share. It will be necessary for international banks to contribute something to effective collaboration with other established participants in ecosystem. It is an instance of an international bank integrating itself into the digital ecosystem by setting up SC Ventures in China, a business unit that aims to stimulate innovation, participate in disruptive fintech, and consider different business models (KPMG, 2021).

International commercial banks have the chance to assist mainland Chinese firms seeking to form a representation in Hong Kong as part of their foreign development ambitions, in addition to linking them to the digital ecosystem onshore. The two-way commercial banking potential in Hong Kong might benefit from the efforts of several foreign institutions. In their opinion, banks should devote more resources to improving their agility, decision-making, as well as their corporate strategy, risk management skills, total investment, or resources – particularly around data sharing including data security challenges associated to plugging into the ecosystem – in order to take advantage of commercial banking prospects.

For a long time, Hong Kong has been a popular destination for firms looking to raise financing, thanks to the vast number of banks in the city vying for business. Banks in Hong Kong have a unique opportunity to assist their foreign customers raise cash in mainland China as part of their onshore development ambitions by using their knowledge and expertise. In fact, many enterprises would prefer to raise money domestically in RMB, therefore being able to do so successfully might provide foreign banks a considerable competitive edge (KPMG, 2021).

In 2020, there is no question that the Covid-19 epidemic contributed to the expansion of online platforms among conventional banks, which has also made them more competitive against virtual banks on the digital front. There are, however, a number of hazards associated with the fast acceptance and consumption of banking goods and services through digital channels, such as conduct risk.

The transition from offline to online advances at breakneck speed, with conduct risk in the digital arena becoming an increasingly important area of concern. The delivery of fair value mostly in digital era is one of the four strategic goals identified in the Financial Conduct Authority's business strategy for 2020/21. It is hoped that the results would allow customers to choose items that satisfy their requirements while also being of a high quality and reasonable price. It is also hoped that digital innovation but also competition will help to increase the value for customers and prevent vulnerable customers from being abused or targeted with low-value products and services (KPMG, 2021).

While the increased regulatory attention has assisted in shining a spotlight on behaviour and improving compliance, one consequence of these higher restrictions is that the actual offering of goods may become more limited. This is mostly because banks are striving to achieve the perfect balance between upholding regulatory requirements and fostering economic growth. Simplifying the selection of relevant services for clients and banks alike might potentially reduce the amount of options available if done solely based on digital criteria and without any human involvement. As a result, it is expected that financial institutions will have an increasing need to strike the correct balance between offering the right products to clients while also satisfying their regulatory compliance duties. Banks might also consider developing solutions that deliver more intelligent robo-advisory. This is an area where we have found a rather low level of adoption among Hong Kong's financial institutions. While there are sophisticated robo-advisory businesses in the market, banks' compliance teams may be hesitant to go down that route, and clients may not be entirely prepared to embrace robo-advice at this point in time. Many factors might contribute to this, including the fact that Hong Kong has typically charged on a trade commission basis instead of an overall portfolio basis, and since rules are principle-based, more technology is required to better manage customers' portfolios, or because Hong Kong has generally charged on a trade commission basis rather than an overall portfolio base. As a result, it is probable that the delayed adoption of portfolio-based appropriateness in Hong Kong is a contributing factor to the lesser take-up of robo-advisory in Hong Kong compared to other financial centres (KPMG, 2021).

The digitalization and automation of suitability, in its opinion, may help banks provide better customer service while also reducing conduct risk. This technique, which they refer to as 'Suitability 2.0,' may aid in the improvement of efficiency, the strengthening of compliance, the enhancement of monitoring, and the decrease of mis-selling activities. It may also assist in increasing sales and improving profitability by shortening the lead time for products due diligence, increasing the pace at which projects are executed, and providing higher accuracy than previous suitability evaluations. The adoption of a more digitalized and automated approach to suitability, as well as the development and implementation of a robust sales suitability framework, can assist banks in reducing mis-selling, minimising conduct risk, managing conflicts of interest, and gaining a competitive advantage in the market in general (Liébana?Cabanillas, Muñoz?Leiva, and Rejón?Guardia, 2013).

Another significant difficulty for banks is that they may not fully understand the scope of all of their regulatory duties. A breach of conduct is one duty, but a lack of a complete grasp of all rules that banks must comply with may also result in a breach of the conduct requirement. Traditionally, conduct included both human behaviour (which was heavily influenced by culture) and rules (whether banks have the ability to control the right conduct). Although online platforms and technologically enabled solutions have proliferated, banks now have to comprehend their duties in a digital environment. Institutional investors and regulators must pay close attention to concerns like as biases in artificial intelligence algorithms and data privacy, as well as the potential effect these issues may have on conduct risk (KPMG, 2021).

Impact of e-banking on market share

Report by Quinlan & Associates

Virtual banks, according to a survey by Quinlan & Associates, might account for more than 19 percent of total market revenues by 2025.


The eight virtual banks in Hong Kong, according to Quinlan & Associates, are poised for major revenue growth and an increase in their percentage of deposits. Neobanks may produce annual revenues of up to HK$76 billion by 2025, with a combined market share of 19.3 percent (DiBiasio, 2021).

These estimates are based on annual retail, commercial, and corporate banking revenue of around HK$373.0 billion ($47.9 billion). According to the consultants' estimations, the top four incumbents – HSBC, Standard Chartered, Bank of China, and Hang Seng Bank – currently control 62 percent of deposits in the area as well as 54 percent of loans (DiBiasio, 2021).

The quick rate at which neobanks (another word for branchless banks) had attracted consumers in places such as the UK suggests that Hong Kong's financial services business may be able to attract a big number of customers in the future. However, a fifth of the revenue market is a significant proportion of the industry: in the United Kingdom, for instance, neobanks are still struggling with fundamentals such as increasing deposits (DiBiasio, 2021). Quinlan's research notes that the expansion of virtual banks faces several obstacles. With low interest rates on the horizon and the need to rapidly expand their client bases, virtual banks seem to be more likely to pursue fee-based revenue rather than conventional deposit-based lending models in order to remain competitive.

Researchers believe that Hong Kong's virtual banks have a great deal of room for growth in the fee-based revenue model of the future. These banks could offer services such as insurance plans, wealth management consultations, purchase now pay later loans, budget software, investment products or trading services, international multi-currency exchange but also payment capabilities (DiBiasio, 2021).

Market sizing

Virtual banks are expected to attracxt up to 1.9 million customers by 2025, according to market estimates made by the company. Mox Bank extrapolates its bullish estimates on acquiring deposits from a total deposit base of more than HK$5.1 billion as of December 2020, which it says has an average customer balance of more than HK$70,000. This kind of action would result in Mox's retail customer deposit amounts being half of what they are now at HSBC, totaling HK$443 billion (DiBiasio, 2021). Based on HSBC's composition, the company forecasts the other industries of virtual banks, including wealth management, SME banking, or corporate banking.

It's predicted by Quinlan & Associates that personal and SME loans will be the most popular forms of credit, with creditors charging an average interest rate of 9 percent on those loans. This leads to estimates that neobanks would make HK$34 billion in interest income this year.

The digital banks include linkages to massive international corporations, which include important financial institutions. and PCCW Ltd founded Mox, which is backed by Std Chartered and has a worldwide reach, in partnership with and PCCW Ltd. A subsidiary of the Chinese fintech giant Ant Group Co., Ltd. is WeLab Bank, a subsidiary of the domestic fintech company WeLab. It's run by ZhongAn Online P & C Insurance Co. Ltd., a Chinese insurer that says it has more than 500,000 customers (Wong, 2021). 

 The introduction of virtual banks is seen by the city's administration as a "critical pillar" facilitating Hong Kong's entrance into the so-called smart-banking age, as well as a means of encouraging the widespread use of financial technology throughout the sector.

There are various signs to suggest this is happening. According to Hong Kong-based McKinsey & Co. consultant Winston Yung, conventional banks' recent efforts to keep up with the rapid technological advancements of their digital competitors have been particularly noticeable. There are a few of traditional banks offering mobile apps that offer a range of financial services, such as wealth management, while others are enhancing their basic service with digital enhancements (Wong, 2021).


The available research has prepared the path for the conclusion that banks that implement internet banking would gain from cost reduction and increased profitability and market share. Banks that have implemented online banking have found that they may save money by lowering their entire headcount and making better use of their current facilities, and at the same time capturing the market. The increase in efficiency and productivity as a consequence of this will have a favourable influence on the profitability of the company. According to recent research, there is a beneficial association between online banking and financial success as assessed by return on assets and return on equity. According to the findings, banks that have implemented e-banking beat their counterparts in terms of profitability, number of customers. As a result, it is anticipated that the deployment of e-banking would result in major changes in the return on assets and return on equity when compared to the pre-online banking period.

When it comes to doing research, there are a number of strategies and procedures available to researchers. However, research methodology is a methodical approach to solving research problems. It is a branch of science that focuses on how to do research in a methodical manner. Researchers in this discipline explain themselves by describing the many processes that are often used to investigate a research issue. Thus, the scientific methodology used to undertake a research work is referred to as methodology.

According to a study by Alase (2017), methods to research are defined in connection to the topic matter under investigation. In order to employ any of these methods, the assessment problem must be compatible with the technique being used in some manner. Methodologies of investigation such as inductive and deductive are two separate categories.

Researchers that use an inductive approach to their work begin by gathering data that is relevant to the question at hand. After a large amount of data has been obtained, the researcher will take a step back to get a bird's-eye view of her findings. Currently, the researcher is searching for trends in the data and creating an explanation for them. Another way of putting it is that inductive research starts with a narrow set of observations and then moves on to a wider range of ideas based on those discoveries. It's like going from facts to hypothesis or one specific example to a broader notion (Gioia, Corley, and Hamilton, 2013). 

Deductive researchers reverse the sequence of the processes that were used in inductive research. Data-driven research is then used to assess the validity of a social theory. Consequently, people's knowledge ranges from wide to narrower. It's common to equate scientific inquiry with a methodical approach to research. Prior research is reviewed, beliefs regarding the research topic are examined, and hypotheses based on those theories are tested experimentally (Azungah, 2018). 

Though they seem to be quite distinct, inductive and deductive methods to study are in fact complimentary. Researchers may design their studies to contain both inductive and deductive components. Some researchers begin their research with the intention of solely using inductive or deductive methods, but they find out as they go along that they need to use both methods to fully understand their results. To address the research question, a deductive approach is used.

First, we need to answer the question, "What does data mean?" In a nutshell, data is any kind of information that has been structured in a certain manner. In other words, data collection is the act of collecting and evaluating relevant data from a range of sources to address the research questions, assess results, and predict trends and probability. A society's reliance on data collecting serves as more evidence of its importance. Accurate data collection is necessary for making well-informed decisions, ensuring quality control, and preserving the integrity of research.

Before beginning to gather data, researchers must first determine data categories, data sources, or data collection procedures. It won't take us long to figure out that there are a large number of ways to collect data. all areas of the economy, from research to government, depend significantly on data collection (Lawrence and Tar, 2013). Data gathering, although seeming high-tech and digital, does not need computers, big data, or the internet. There are several ways to gather data, including a simple phone survey, an online survey, or even a man with a clipboard who asks random people a few questions. For the time being, let's attempt to classify various approaches of gathering data (Alshenqeeti, 2014).

There are two primary approaches of gathering data. Aside from that, several terms like approaches, methods and types might be interchangeable based on who is using them. Examples of data collecting "methods" may be found in one source. Even if we call it a commercial study or a scientific research effort, same principles and breakdowns apply to both. These are the two options:

People who study data are going to use the name to show that this is original, first-hand data that they have gathered. Before any additional or related research is done, this is the first stage in acquiring information. The accuracy of primary data findings is greatly enhanced if the researcher obtains the data. Firsthand study may be time-consuming and costly, thus there's a drawback (Opoku, Ahmed, and Akotia, 2016).

The term "secondary data" refers to information that has previously been subjected to statistical analysis by another party. A researcher may have requested others to acquire this data, or he or she may have searched it up themselves. In other words, it's second-hand data. For all its convenience and lower cost, secondary data raises concerns regarding its validity and reliability (Choy, 2014).

Data from earlier studies is used in secondary research, which is also known as desk research. Analyzing and compiling previously collected data is a valuable research tool. Academic journals, conference proceedings, and other publications are used for secondary research. Libraries, websites, polls, and other sources may provide access to these articles. Non-profit and government organisations may also have data that could be accessible for research purposes. Secondary research techniques and examples are outlined below:

  1. Data available on the internet: The internet is a common tool for gathering secondary data. Accessible data may be downloaded instantly from the internet by just clicking a button. Depending on the amount of data presently accessible, you may be able to get this information for free or for a small price. Websites are a great resource for companies and organisations looking to do research. However, researchers should only obtain information from reputable and trustworthy websites (Sileyew, 2019).
  2. Government and nongovernment agencies: Secondary research may also be helped by government and non-government organisations. It is required to pay a charge in order to access or use data that these organisations make available. These sites provide dependable and accurate data (Panneerselvam, 2014).
  3. Public libraries:Another great place to look for data for this study is a public library. Public libraries have copies of important studies from the past that may be accessed. For the purpose of gathering and analysing crucial information, they are a repository for documents. Every one of these public libraries has a distinct collection of services that make it stand out from the rest. Public libraries have a large number of government publications and business directories and periodicals that provide market data (Awang, 2012).
  4. Commercial information sources:Secondary research may be done using local newspapers, journals, and magazines, which are easily accessible. There are a number of commercial information sources that provide researchers with the most up-to-date information on a variety of subjects (Sileyew, 2019).

The reliability and validity of any research design is critical, and the level to which secondary data connects to the study topic is a vital issue. Because it has to do with drawing conclusions about test findings, validity is a constantly growing and complicated issue. Focusing on the outcomes indicates that the conclusions drawn are reasonable and sufficient. Inferences, according to Messick (1989), are hypotheses, and validating these assumptions amounts to hypothesis-testing. The validity of assessment findings or test scores is thus considered as evaluative assessments that are made on the inferences drawn from the results or scores; that is, if proper interpretations are formed and actions are done as a consequence of the conclusions. Evaluative judgments need to be accurate and based on accurate information (Abbaszadeh, 2012).

An accurate test is one that can be used by several researchers under the same circumstances and with the same findings. Over time, reliability indicates consistency and replicability. As a result, the less dependable a test is, the higher its reliability score is considered to be, the higher its reliability score is considered to be (Neuman, 2003). Similarly, Maree and Fraser (2004) investigate whether the same test, given to the same individuals under the same settings, would provide the same findings. This is beneficial to both researchers and educators since it allows them to establish valid comparisons. The lower the assessment's dependability, the more likely it is to include mistakes, and vice versa. A major issue in examination is reliability, which is portrayed as a characteristic that contributes to validity rather than opposes it. Following Messick (1989), validity has been redefined as the union of dependability and validity, rather than the opposite. Because Messick (1989) acknowledged reliability as among the validating sorts of data, he has contributed to the construct validity in general (Mohammadbeigi, Mohammadsalehi, and Aligol, 2015).

Secondary data usage raises concerns primarily about the possible harm to individuals as well as the problem of permission and the return of consent data to the original source. The amount of identifying information that is provided in secondary data varies from source to source. The ethical board does not need to evaluate the data in full if it does not include any identifying information, is completely free of such information, or is appropriately coded so that the researcher does not have access to the rules. The only thing left is for the board to verify that the data is anonymous.   To answer the research question, the researcher must explain why identifying information is required and how the privacy and confidentiality of the data will be protected. Requesting a waiver of authorization is an option for researchers who are certain that the issues stated before have been resolved to their satisfaction (Newman, Lim, and Pineda, 2013).

Whenever data is made publicly available, whether through the internet, books, or some other kind of public forum, it is assumed that permission has been granted for further usage and analysis. The original data, on the other hand, should be acknowledged as the only owner. Before utilising data from a study project, one must seek specific prior approval from the original research team in order to receive ethical clearance. The application for ethical approval must contain a declaration that the data will only be used with the agreement of the original research team if the research study is a subset of another research project.

For the time being, the literature has aided in understanding the method in which electronic banking has transformed the banking industry. However, in order to put the backdrop into perspective, one may look at the recent reforms that have been implemented in the banking industry in order to enable virtual banks to develop and get a bigger portion of the market. Indeed, this digital transition in the banking industry has been met with interest in the Hong Kong region. This is one of the reasons why some of the world's largest financial institutions are flocking to Hong Kong now that the market for electronic banking has been opened. Digital banking licences have been granted to companies such as Tencent, which operates as a gaming and internet group, Ant Financial, which operates as a payment business for the Alibaba e-commerce joint, ZhongAn, which operates as an insurer, and Xiaomi, which operates as a smartphone manufacturer. This was due to the fact that the Hong Kong market has an estimated market size of $15 billion, or a 2/3rd share of annual retail banking revenues. At the moment, Standard Chartered and HSBC hold the majority of this market share, and they have done so without fear of encountering significant competition for a lengthy period (Financial Times, 2021).

The majority of the market is now controlled by traditional financial institutions, and digital banking has the potential to significantly disrupt them. Standard Chartered, Hang Seng Bank, HSBC, and Bank of China Hong Kong now control 66 percent of the retail banking market in Hong Kong. They account for a significant portion of retail home loans and credit cards. Only 53% of Hong Kongers were happy with the financial services they got in the previous year, according to the latest figures. This percentage was 78 percent in the United Kingdom and 88 percent in the United States. This was owing to consumer complaints about awkward and sluggish internet banking, as well as generally bad customer service, a lack of information about fees, and difficulties in creating an account. The area of Hong Kong has lagged behind its regional and worldwide counterparts, and the issuance of new virtual bank licences is an acknowledgment of this reality, with the goal of developing virtual banking in the region as a result (Financial Times, 2021).

The digital banking models that have been raised in different parts of the globe have been carefully analyzed by the regulators and banks. For instance, Kakao, the internet messaging group had been given the banking license in Korea back in 2017. This allowed the company to get over 4m users within the first six months of its operations. The new “challenger banks” of UK like Starling Bank and Atom Bank too got success in terms of attaining new customers. The six companies that are being given the banking licenses are all familiar to people, which is more likely to bring the customers to them. With the digital banks, there will be a need of fewer employees that would not need costly branches to be set up or to incur their running costs. Further, the IT systems could be built from scratch to allow for true transformation of services being offered. Digital banks have essentially given a fresh start to the banking sector.

To understand how these companies would be able to bring a chance to the Hong Kong banking sector, one can make reference to the situation present in China. The online banking sector is still in its early stages. However, in the last seven years, Tencent and Ant have transformed the manner in which digital payments are undertaken. With the applications like WeChat and Alipay, the users are able to abandon cash, access a range of services like transport and food delivery, and manage their savings online. The traditional banking services seem to be at the end point for the young Chinese and are almost obsolete now. It would not be wrong to say that what Tencent and Ant are doing is the first battle of technology and banking players. There is thus a high possibility of the companies like Tencent taking over a substantial part of market share in view of technology specialist of Ashurst law firm, Hoi Tak Leung. Even though the strategies that have been planned by HKT, ZhongAn, Standard Chartered and Xiaomi cannot be predicted yet, it is not wrong to say that they cannot be taken lightly. The manner, in which the virtual banks pose a challenge for the traditional Hong Kong market, can be seen in the income that is at risk with such entry. 

One has seen expansion of Xiaomi from their key stream of smartphones to finance and their digital capabilities have allowed it to build itself from the very start. The users of HKT are untapped source of user data and the same is true for ZhongAn as well. The application of StanChart is already deemed as an attempt of differentiating itself from traditional banking, while allowing for it to retain the trust that the bank associates itself with, which means there is no need for a new kind of online banking license for it. The eventual winner of Jong Kong market is yet to be seen. With the regulations related to these new licenses being easy for the big institutions, it will be easy for entry in this market for these players. Even though the minimum capital requirement is same for virtual and traditional banks, at HK$300m, the technological requirements are stricter for the virtual banks. Though, the larger or the expanded pool of customers that come in virtual banking, in comparison to traditional banking, do make such strictness worth the additional cost (Financial Times, 2021).

Today's reality is that because of their greater reach, virtual banks provide an excellent possibility to surpass conventional banks in terms of market share. However, in contrast to its conventional competitors, the virtual banks of Hong Kong have been plagued by a red link for many years. A significant opportunity exists for the expansion and use of the virtual banking sector by a variety of financial institutions and corporations in order to increase profitability and market share. Considering that everyone now has a smartphone in their pocket, this is quite feasible in the digital era. Smartphones may be used to engage with prospective and distant clients (Wee, 2021).

Profitability is critical for every company's success in order to expand. Market share is a notion that is similar to profitability in terms of its relevance for the firm in question. The greater the firm's market share, the greater the likelihood that the company will be profitable. When it comes to importance in terms of profitability and market share, the banking industry is no exception. In order for the banking industry to expand, the businesses that make up the sector must generate profits and expand their market share. The conventional style of banking consisted of constrained brick and mortar facilities, with consumers had to physically visit the banks in order to complete their transactions. Following this, banking was transformed into telecommunication banking, in which transactions could be completed over the phone call. This implies that a consumer might make a phone call and get instructions while still receiving certain services. With the advent of the digital era, the banking industry underwent even further transformation and transitioned to an electronic format. With the advent of digital technology, the sector was able to provide its services by a single click of the mouse or a touch on the screen, allowing for the movement of money across the world or the payment of charges incurred by the consumer. The consumer no longer needed to go anywhere and was able to manage almost anything via the use of the internet.

The introduction of the technological era has enabled the industry to undergo a transformation. Banks are now able to provide additional services to their consumers, and the customers are able to take use of these services without experiencing any difficulties. Customers can now access everything quickly and simply, allowing them to save both time and money compared to the days when they did not have access to electronic banking. This has also made the job of banking professionals simpler, as they can now depend on digital technology to do their tasks, which is both easier and quicker than the previous style of operation. Customers' pleasure has increased as a result of this introduction of the electronic or digital world into the banking sector. As a result of this, banks have increased their profitability and market share. Through the use of electronic banking, banks may now contact consumers who live in remote areas and who would otherwise be unable to do business with them owing to distance concerns. Accordingly, using the electronic approach has provided banks with more access to a larger client base, boosting their chances of being profitable.

The banking sector of Hong Kong has also noted this digital transformation, where the electronic banking has almost transformed the manner in which banking is undertaken. To see the manner in which this was done, reference could be made to the theoretical frameworks that underpin the adoption of electronic banking in the region of Hong Kong. This is underlined in the four key principles of perceived utility of the electronic banking, its perceived ease of use, the personal innovativeness and the perceived risk. Electronic banking does have a perceived utility of being useful for the people of the region. The use is in terms of ease of access, which has also allowed for ease of use of the services of the bank. The banking world in itself has been innovated with the integration of digital technologies in the banking services. The perceived risk of electronic banking is no doubt high due to the cyber security issues faced across the globe. However, this aspect also points towards more security that is offered to the customers now, in terms of reducing their risk while resorting to modes of traditional currency or paperwork. This theoretical concept does show that the banking factor is ready to adopt a full digital transformation.

The virtual banks in Hong Kong do have the possibility of taking advantage of digitalization. However, in reality, this has still not been done. The younger generation is indeed inclined towards virtual banking; though, it still lags behind the traditional banking sector. This can be elaborated through examples. The leading digital banks of Hong Kong, ZA Bank, which has been bankrolled by ZhongAn Online P&C Insurance Co. of China, and Standard Chartered Plc backed Mox Bank Ltd have predicted that they would reach the breakeven point by 2024. The efforts of building the operations and rolling of new products puts this as the earliest possible date for reaching this point. A prime reason for this is the establishment costs of a virtual bank and the time taken to scale up the work, where attaining critical mass and being profitable takes long. Even though the first virtual bank of the region was rolled down a few years back, it still fails to pose a major threat to the market leaders like Standard Chartered, HSBC Holdings Plc and Hang Seng Bank (Wee, 2021).

In the digital world, there are only a couple of challengers when looked across the globe, which have attained a breakeven point after 5-6 years of working. The electronic banks are eyeing the retail, corporate and commercial banking revenues as it presents a good pool of profit making for them. The eight banks of Hong Kong attracted around 0.1% of the total of city deposits, which is around HK$19 billion, at the end of March 2021. There were over 300,000 customers of ZA, the very first digital bank, that launched in March 2020 and Mox had 90,000 customers as of March, which started its operations in September. Out of the digital banks in Hong Kong, the two held 62% of the share of this market, with 630,000 accounts. In order to attract the market, ZA did offer gimmicky deport rates going as high as 6.8%, which was later on revised to 1% for initial HK$200,000 and post this was at 0.01%. The rates offered by Mox were at 0.65%, where the bank stated that it believed in fair pricing (Wee, 2021).

The traditional banks too have reacted to the digital rivals since 2019, where they have revamped and upgraded their digital channels. Apart from this, they are rethinking the minimum deposits and the fees. They have adopted a very aggressive approach where they have eliminated and cut the fees. An example of this can be noted in HSBC, which has scrapped the transaction and general banking fees, along with removing the monthly fee for customers that have a deposit of less than HK$5,000. The focus of the digital banks is on rolling out a higher number of banking products so that they can get more in fees. This is deemed as the main point of profit making for these banks. The virtual banking development is dependent on the pace of rolling out their offerings to the likes of wealth management and insurance. Even though the leading players are behind on their schedule, they are doing well in comparison as banks like ZA and Mox have taken advantage of being the early bird and have capitalized on it.

In their efforts of increasing market share and profitability, the virtual banks have also added more staff in their count. This was an increase of 20% just for the bank like Standard Chartered. The other lenders like Group Ltd., PCCW Ltd., and HKT too have added more staff for its plans to introduce wealth products, loans, and foreign exchange, while enhancing the staff for credit card operations. This is because the banks have noted a lot of opportunities in the digital or electronic banking stream. Similar strategy has been adopted by ZA so as to offer services of wealth management, and products like fixed income, stock trading and mutual funds.

Till now, it is clear that the electronic banking in Hong Kong has arrived but is yet to attain its full growth. The electronic banking in the region is still in its early stages and struggles to be profitable. But, the overall experience attained from the global perspective shows a good progress path for this segment. The practicalities and reality of banking side of this discussion has been covered; but now there is a need to look at the customer receptivity to the issue to understand if the electronic banks would really be able to attain the required market share and be profitable.

The consumers of Hong Kong are embracing the electronic banking due to the major changes brought in the manner in which the banks have created the customer experience and the design product offerings. This has been established through the survey undertaken in context of personal financial services by McKinsey. The survey was undertaken on 1,000 respondents of Hong Kong and covered 20,000 across the region, which showed that 93% of the customers relied on digital banking services for at least once every month, in comparison to the rest of developed Asia at 90%.

Since 2017, when this survey was undertaken, there has been a notable development as affluence and age is no longer attributed to the digital banking use in Hong Kong. This is because adoption is nearly uniform in all the income levels and age groups. The most significant finding was that 2/3rd of the respondents considered switching to completely virtual banks, and this figure for overall Asia was at 62%. Even though there was fewer pronouncements of e-wallet and fintech services, with a usage by 47% users. However, this scenario was likely to change with higher income and transition towards cashless society even in the older age groups. As per the survey, 64% consumers used cash for less than 30% of their weekly purchases.

With the COVID19 pandemic, the shift towards digital world, as the people are now pushed to resort to online banking due to lockdowns imposed in different areas. Here, a key part was played by the regulatory changes as well, as the Fintech 2025 Strategy, was launched by the Hong Kong Monetary Authority, in June 2021. This has fostered fintech innovation and ensured that the consumers get efficient and fair services. With the launch of eight new virtual banks, the market has seen a disruption. This is because of cash rebates for referrals, the higher deposit interest rates, and the spending rewards that attract the customers to the banks since their debut of 2020. There has been a noted welcome of the virtual banking innovations in terms of numberless debit cards and QR code payments.

This digital disruption has shaken the highly mature banking market of Hong Kong. The services are being improved by large banks, to match the performance of competitors, and to retain the customers. In order to survive the disruption caused by the electronic banks, the traditional banks too have spearheaded partnerships so as to tap into this market. Since the pandemic, the digital sales performance has seen five times faster growth in wealth management than the digital laggards. 85% of the respondents stated that they were likely to increase or maintain the online banking and use of mobile post the pandemic. This was because the consumers of Hong Kong were more satisfied with the digital banking channels, in comparison to the conventional counterparts like call centers and branches.

As per the expectations, the virtual banks of the region could take 1/5th of the banking market share. This is because the virtual banks are driving a greater user engagement and their activity, which helps them in winning the trust of the customers, and ultimately gets them the wallet share. The focus of the virtual banks is on differentiating product development and customer acquisition. The customer data is intended to be leveraged so as to win a leading position within this niche market segment. The key to market share and profit sharing is thus presented to virtual banks in form of the reliance on digital technologies post the pandemic, and the plethora of services offered by them to the customers. Although, it remains to be seen how the virtual banks would compete among themselves, and who will emerge the leader in the Hong Kong region (DiBiasio, 2021).


The purpose of this study was to better understand the impact of electronic banking on the profitability and market share of financial institutions in the Hong Kong area. In order to begin this conversation, the research team used a literature review approach, which allowed them to dig deeper into the previously published information. This provided the researcher with the opportunity to review academic publications, papers, and other key sources that shed light on the subject under consideration. This research was limited to a desk-based setting owing to the fact that the globe is still recovering from the consequences of the epidemic. Although this manner of operation was chosen, a deliberate attempt was made to evaluate and apply contemporary information in order to get a current understanding of the issue under consideration. By conducting secondary research, it was possible to present the viewpoints of various scholars as well as reports published by key/leading organisations in a more comprehensive and cohesive manner. In this debate, the gap in the literature that was identified in the context of the lack of a relationship between the effect of electronic banking on market share and profitability in Hong Kong was investigated.

The debate started with an introduction that provided background information for this work, which was followed by a review of the literature that included discussion of the work of several researchers. Following then, the conversation focused on the research paradigm that was used in this study, the results in the context of the banks' market share in the digital world, and a full discussion of the important conclusions from this research. This flow of information enabled the reader to move through the text in a fluid way and to comprehend the issue from both a literary and a critical standpoint. The literature, in particular, began with an examination of electronic banking and its widespread adoption, followed by a discussion of the factors that have an impact on electronic banking and how they can be mitigated. This portion discussed the issue from a theoretical standpoint, which assisted in understanding that virtual banks represent an opportunity that can be used by a variety of businesses or financial institutions in order to grow their market share and profits. One of the most important topics covered here was the possibility for Hong Kong's banks to expand internationally, which would be beneficial in terms of expanding their market share and boosting their profitability. The difficulties that the banks faced as a result of adopting a digital strategy were also discussed, as was the importance of comprehending the role played by e-banking in the context of the market share held by various financial institutions. Despite the fact that these segments explored the possibility of electronic banks replacing the traditional banking system in the near future, the findings and discussion segment assisted in presenting the manner in which virtual banks still have a long way to go before they can completely replace it in the traditional banking system.

To bring the discussion to its conclusion, it cannot be denied that market share plays a crucial role in profitability of an entity and this is the reason why the virtual banks are eyeing on the market share of the traditional banks. With COVID shaking up lives of people and restricting them to their homes, the growth of internet and digital technologies grew manifolds. It almost became a necessity to rely on digital technology to fulfill the basic necessity. The lockdowns that extended for months, made this necessity turn into dependency, which followed even post the lockdowns were lifted. This also allowed the businesses to take their business in the virtual world, and the same is true for the banking sector. This opportunity has not only been realized by the businesses but also by the regulatory bodies, which have gone ahead and issued new licenses to different players, to expand the banking services or bring banking services through the electronic mode. The consumer reception to virtual banking was poor or apprehensive in initial days due to the poor services that were offered. However, this situation has changed a lot in the recent years. This was reflected in the findings presented in this work, where it was shown that the consumers were now more likely to opt for the virtual and electronic banks, due to the ease they provide to their consumers.

The fight for market share is quite evident in the Hong Kong banking market, and this has been reflected in the strategies that have been adopted by the present virtual banks in the region. These services are aimed at giving the banks the competitive edge so as to get that bigger bite of cake, which is the customer wallet. The more services that the customers taken, the more this share will be. This is the reason why these banks are coming up with more and more services for their users, so that the consumers come to them. In this regard, the heat is already felt by the traditional banks, which is reflected in their transition towards the electronic banking. The services that they offer are now taking the digital route as well, as they understand the role that technology plays in the present world. This could prove as a challenge for the new virtual banks in context of competing for market share. This is because the traditional banks already have the upper hand of experience and banking resources. All they need is the connection to digital technology, which is anyways being integrated in the daily activities of the traditional banks as well. Hence, the fight for profitability and market share is very competitive.

In order to win this fight, not only the need is to focus on better customer services but also to reinvent and innovate the present services, particularly for the traditional banks vying to enter the virtual banking stream. The impact of electronic banks has been quite significant in the region of Hong Kong, where each player is concerned about what share of market they get, which decides their profitability and winnings. In doing so, there is a need to ensure that safe and secure banking services are offered to the customers, and to educate the customers regarding these services. The young ones are already inclined towards these services, and the need is now to focus on the older customers.

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