WeLab: A fintech experiment succeeds in Hong Kong
Ex-Citibanker Simon Loong is playing a long game – he has assembled some powerful backers for his Hong Kong fintech and now, armed with a new virtual banking licence, he wants WeLab to take on the territory’s established banking incumbents.
Simon Loong shows up for his interview with Asiamoney in a suit.
Outwardly, there’s nothing unusual about that. Loong is, after all, a banker – a former Citibanker at that – and bankers, in the main, wear suits to work.
But Loong’s bank, WeLab, is different from other banks in Hong Kong. It’s a virtual bank that only operates online.
Virtual banks such as WeLab don’t have branches, at least not like the increasingly anachronistic bricks-and-mortar versions that line the teeming streets of Hong Kong, one of the world’s most wired cities. Instead, WeLab exists in the palms of its users’ hands, on their smartphones or computer screens. And one doesn’t need to be suited to service 36 million customers across Hong Kong, China and Indonesia.
In April, WeLab was one of four virtual entities licensed by the Hong Kong Monetary Authority, the territory’s central bank, which is anxious for Hong Kong to keep up in the global fintech race; another four were licensed in May.
Loong set up WeLab in 2013, leasing space in a building in Sheung Wan, a low-rent neighbourhood that has become Hong Kong’s hip startup hub.
Sheung Wan is just a few minutes by tram from the city’s established financial district in Central, but a generation away attitudinally. The area is traditionally home to hundreds of small shops and family businesses: a money changer set up on the same street nearly a century ago is now the very mainstream Hang Seng Bank.
Which brings us back to suits, specifically Loong’s sober grey threads. WeLab is a startup and part of a disruptive culture where such formal wear is regarded as old-fashioned – a bit 20th century. In WeLab’s buzzy office, staffed by scores of 20-somethings wearing jeans and sneakers, Loong is the only one in a suit.
“I wore one just for you,” 42-year-old Loong jokes.
But truth be told, Loong is in his glad rags because he has just come from meeting old-world financiers and backers in Central. Fintech entrepreneurs like Loong still need the conservative establishment, its connections and money, which in Hong Kong has been minted largely in property and traditional finance. Fintechs such as WeLab span that divide.
Simon Loong (fourth from right, first row standing) may spend his days worrying about being an entrepreneur, but WeLab has big backers with confidence in his firm
Of the eight virtual banks licensed by Hong Kong’s HKMA so far, WeLab has attracted the most attention because, unlike most of the others, it is a bank startup that seems to have come from nowhere. The HKMA says these new virtual banks “are aimed at increasing competition” in Hong Kong, adding: “There will be competition between traditional banks and digital banks, but we believe the Hong Kong market can absorb such competitive pressure.”
In markets such as Japan and Canada, virtual banks such as Rakuten and Tangerine have grabbed market share. WeLab claims that as of April, it has facilitated over $5 billion in consumer loans, and is the marker leader in online-only lending in Hong Kong and number two in China.
But WeLab finds itself up against some powerful new competitors vying for Hong Kong’s young digital banking market. Its rivals include: Livi VB, a joint venture of Bank of China, Jardines and JD.com, the company often regarded as China’s equal to Amazon; SC Digital, a Standard Chartered-led venture that includes local telco PCCW-HKT and the big Chinese travel site Ctrip as shareholders; and Zhong An Virtual Finance, which is backed by China’s online insurance firm Zhong An and property group Sinolink.
The second batch, licensed in May, are made up from: Alibaba’s Ant SME Services; Infinium Limited, which has as investors China’s Tencent, ICBC of China the world’s largest bank, mainland investor Zhang Lei’s Hillhouse Capital, Hong Kong’s stock exchange operator HKEx and Hong Kong businessman Adrian Cheng of the New World property dynasty; Insight Fintech, backed by Chinese telecom giant Xiaomi; and China’s insurance and financial services company Ping An.
Notably absent from that line-up in Hong Kong is HSBC, which is rumoured to be launching a standalone digital bank – an international effort known internally as Project Iceberg – aimed at the small and medium-sized business sector.
Citibank, which pioneered internet banking in Hong Kong in 1998, says it is happy with its existing online product offering.
Loong started WeLab with a personal tax loan from Citibank in 2013. Three financing rounds and $220 million later, he has assembled an enviable roster of backers, including Malaysian sovereign investor Khazanah, a joint venture formed between China’s national postal service and Hong Kong tycoon Li Ka-shing’s media company Tom, Alibaba, the IFC, Credit Suisse, China Construction Bank and Dutch bank ING.
A former Hong Kong government secretary for financial services and treasury, Chan Ka-keung is a WeLab adviser.
Loong is keen to stress that just because WeLab is new – and offers a different type of banking experience to the kind Hongkongers are accustomed to getting at century-old Hang Seng Bank or 154-year-old HSBC – that doesn’t make it flaky or risky. Big technology investors in WeLab are welcome, Loong says, for the smarts they bring, but having big banks as shareholders is crucial to WeLab’s credibility.
“Banks traditionally do not invest in fintech because they are sceptical about their risk management,” he says. “Having a bank investing [in us] gives us an additional sense of validation.”
He adds that having Khazanah as an investor is also important: “It’s a validation from a sovereign fund, because they are usually a lot stricter in their investment evaluations.”
Loong, his Taiwanese wife Frances Kang, and another partner, Kelly Wong, started WeLab in January 2013 in a tiny office crammed with 11 people. The venture was initially financed by the loan from Citibank, credit card debt and some modest investment raised from friends and family.
“I’d just been a student,” Loong says. “I’d spent all my money on my wedding. I was broke.”
Banks traditionally do not invest in fintech because they are sceptical about their risk management ... Having a bank investing [in us] gives us an additional sense of validation - Simon Loong
Loong says his big idea was, and still is today, to build a technology-based banking experience. That means, he says, “that we do not need to meet anyone face to face anymore. Everything is done through online. No branches.”
By July of 2013, Loong had launched what he regards as the first fully online, lending-off-the-balance-sheet business in Hong Kong. The first loan was a test, an interest-free loan of around HK$10,000 ($1,275) to individuals, to be paid back over three to six months.
“The first hundred loans were at no interest,” he recalls. “I just wanted people to know about our service. As long as you pay back, I’m very happy.”
And they did, and then some. The next year, WeLab opened in China. Today, it boasts 36 million registered users, the second-largest online lender operating in Greater China after China’s state-linked Ping An.
WeLab operates mobile lending platforms called Wolaidai (which translates as ‘I come to lend’) and WeLend, in China and Hong Kong respectively.
The average loan size in Hong Kong is about HK$80,000 ($10,000) over two years, but in China, WeLab has found a niche with its average ticket of around $1,200 – lower than the amount Chinese banks normally lend to individuals – and repayable over a year.
Interest rates are consistent with market rates elsewhere, Loong says.
According to the draft prospectus circulated last year, WeLab charged an average rate of 24.7% in Hong Kong and 25.5% in China: loan delinquency rates were 0.1% to 0.2% in Hong Kong, and between 0.4% and 1.5% in China, although WeLab says this data from the prospectus is now out of date.
Loong says that about a third of the loans that WeLab approves are used to consolidate personal debts, such as runaway credit card borrowings, while the rest is the classic personal loan profile: education, investment, travel, household goods.
In China, WeLab customers typically borrow to buy an expensive branded smartphone.
We realized that if we stay in Hong Kong, we’ll never be a billion-dollar company because of the size of the population, so instead of picking the easiest, the lowest-hanging fruit, why don’t we just pick the one with the maximum upside. That’s why we went into China - Simon Loong
Most of his users also bank elsewhere, so an obvious question is why don’t they go to an HSBC, a Bank of China or similar for their loans?
“Our benefit is always convenience,” he says. WeLab is “more user-friendly, more enjoyable.”
The company licenses its technology to help banks, and China has provided rich pickings, with what he describes as a tailored, white-label back-end system that WeLab inserts into Chinese financial institutions.
“There’s actually a lot of Chinese banks, big and small ones, or microfinance companies, consumer finance companies, and all want to go into fintech,” Loong says. “But there’s just a lack of talent and they don’t have that experience. I don’t mind if my brand is not out there. If there are people using my technology, I have a way to monetize – I’m happy.”
Being from Hong Kong adds credibility in China, he says, because of its reputation in financial services.
“We realized that if we stay in Hong Kong, we’ll never be a billion-dollar company because of the size of the population, so instead of picking the easiest, the lowest-hanging fruit, why don’t we just pick the one with the maximum upside. That’s why we went into China. Not because it’s the easiest, it’s just because of maximum upside. Obviously, we benefited from a huge adoption of the cheap smartphone.”
WeLab’s Shenzhen-based China business now has 700 staff. Another joint venture in Jakarta with the Indonesian auto-to-financial services firm Astra International has almost 30 people. “Our target market for all the three markets (Hong Kong, China and Indonesia) is the 20- to 35-year-old tech-savvy person with a stable income,” Loong says.
WeLab doesn’t offer mortgages, but Loong says that is an option in property-obsessed Hong Kong as the business evolves.
Before WeLab, Loong had a fairly conventional CV for a young Asian banker. Born in Hong Kong and educated at Sydney University, Loong cut his teeth with Citibank and Standard Chartered. He joined Citi as a management trainee after his graduation in 1998, at a time when Asia was reeling from the late 1990s financial crisis. During stints in Hong Kong and Singapore, he specialized in data analytics and risk management. After six years with Citi in Singapore, he moved on to the business side to become marketing director for Citi’s credit card franchise in Taiwan.
“I never knew I would be a banker,” Loong says. “I always thought I would be accountant. I’ve always been interested in business.”
But he also nurtured an interest in computer science. When Loong was 10, one of his uncles taught him coding. Indeed, in Loong’s early days at Citi, which were the early days of the internet in Hong Kong, he and some friends started a small networking company built around the idea of centralizing desktop computing power.
“That actually is what we call cloud computing today,” he points out.
The networking venture did not last long.
“Everyone had just graduated from university,” Loong remembers, “and we never had the expertise, and the team was very new. But I still like that idea, I really enjoyed the project. Too bad it didn’t take off. I went back to my day job, which is banking.”
Loong spent 12 years with Citi before being lured back to Hong Kong by Standard Chartered in 2011 as the head of unsecured lending for Hong Kong, and later for Greater China. Around this time, his now wife Kang left to study for an MBA at Stanford University, in the heart of California’s Silicon Valley. Loong says he had no intention of leaving StanChart but during a trip to Stanford to visit her, he looked at her course notes and was intrigued. He decided to take a mid-career sabbatical, joining Kang in studying at Stanford before returning to Hong Kong and StanChart.
“I thought I’ll focus on something that will help my job when I go back to work for a bank. My plan was to go back to work for the bank.”
It didn’t work out that way, thanks to Stanford.
“Entrepreneurship or doing my own startups just sounded so far-fetched for someone who had worked as a banker his whole life,” he recalls.
But a Stanford class he had taken had discussed financial technology in banking, and it kindled an idea.
“At that time, I was so sceptical just like most bankers at that time. But when I came back to Hong Kong, that idea stayed with me.”
Loong returned to StanChart in Hong Kong and worked there for about three or four months. But he couldn’t scratch that fintech itch.
“I was thinking it might not work if it were a startup, but given I came from a very strong banking background, maybe if I combined the best of the old and new, something might actually work.”
I remember when I came back and told one of my bosses, saying that I’m going to quit and start a fintech company. He said: ‘I don’t know what a fintech company is' - Simon Loong
A StanChart mentor gently advised him he had a choice between putting his experience to use for himself, or to return to his old job.
“That really resonated with me. I didn’t want to leave it on the table,” he says. “A lot of people in mid-career want to do a startup, but I think one of the biggest hurdles or deterrents is you have to give up on the salary, the lifestyle. You can’t tell people you work for a big bank anymore, you have to tell people you work for a company no one has heard of. The status is not there.
“But for me I was okay because I lived the prior year as a student. We lived a very frugal life and weren’t used to having silver service. So there was no downgraded lifestyle for me, I was very comfortable with it.”
The timing worked too.
“It was a very good time to start. I’d just got married, my wife had a stable job, there were no kids. My wife said: ‘Why don’t you go and start a startup? I’ll support you.’”
Kang is now a director at Li Ka-shing’s tech-oriented investment firm Horizon Ventures.
Loong recalls that at the time there were a handful of startup fintech companies in China, and nothing in Hong Kong or in most of Asia.
“I remember when I came back and told one of my bosses, saying that I’m going to quit and start a fintech company. He said: ‘I don’t know what a fintech company is.’”
Six years on, Loong has become one of Hong Kong’s few fintech unicorns (privately owned tech companies with a notional valuation of over $1 billion) that just might make it.
“We’ve been profitable since 2017,” he claims.
Loong appointed Morgan Stanley and JPMorgan to help WeLab go public last year. It would have been Hong Kong’s first genuine fintech float in a market largely absent of technology stocks. A draft prospectus went out to banks and investors, with WeLab seeking to raise about $500 million, which would have valued it well above the $1 billion unicorn threshold. According to the prospectus, WeLab reported revenues of $155 million in 2017, and profit of $17.7 million.
But Loong pulled the IPO in December 2018, citing a choppy local market spooked by fear of a US-China trade war. Market sources say the company asked too high a price and potential investors were also concerned about regulatory issues, which the company says have now been resolved with its HKMA licence.
Loong is reluctant to elaborate about the aborted IPO, saying simply that “we looked at it last year, in the end we just decided that wasn’t a good time… (but) it’s on the table.”
With a float off the table for the foreseeable future, investors hankering after a promising Hong Kong fintech investment are now looking at TNG, a digital wallet operator that has targeted the region’s massive remittances sector.
TNG, which stands for The Next Generation, is seeking a listing in the US, a market that founder Alex Kong says understands technology better than Hong Kong. TNG hopes to raise about $300 million, and plans to expand its as-yet unlicensed Hong Kong virtual bank.
The HKMA received 33 applications for virtual banking licences before it settled on the eight, bringing the total number of banks licensed in Hong Kong to a crowded 160. WeLab’s HKMA licensing comes with extra compliance regulations and official paperwork, but Loong says that doesn’t faze him.
“After working in fintech for six years, you can never live and thrive in an environment where there’s no accountability, regulation, licences,” he says. “It isn’t realistic. I guess for a lot of us who came from banks we’re just more used to that. There’s always a regulator asking a question. I think we’re OK with that.”
WeLab and Loong may have come far and relatively fast, but Loong says he constantly warns himself and staff against complacency.
“Sadly, I think it’s my risk training,” Loong says. “I’m always pessimistic. I don’t even hope for the best. I told my team that of the 365 days a year, I worry 364, and only on the last day of the year I look back and I think we did OK.
“I still worry a lot about this company,” he admits. “People never realize the pressure, the pressure of doing your own business. I think as an entrepreneur, you never feel secure. You always feel that. I think the paranoia keeps you alive.”
After six years of being his own boss in a famously small town, Loong often runs into former colleagues from Citi and StanChart, some of whom are in the same jobs as when Loong was a colleague. What happens when they meet?
“They usually ask me if they can get a job.”
Stanchart joins the dots
Over the next year Hongkongers will be bombarded with marketing for the launch of no less than eight new online, or virtual, banks – a cross-media blitz like no other from Hong Kong’s already ultra-competitive financial sector.
Doubtless, in the established fashion for virtual banks elsewhere, they will carry the kind of funky brand names that will make them appear anything but solemn custodians of cash.
It is the largest batch of branchless banks ever to be licensed by the Hong Kong Monetary Authority and is seen as part of Beijing’s ambitions to make the territory Asia’s ‘smart city.’
One of the brood will come from Standard Chartered, which is taking the lion’s share of a promised $380 million investment in a new project, currently and prosaically named ‘SC Digital’.
Leading the project for StanChart is Samir Subberwal, head of retail banking for Greater China and North Asia.
StanChart holds 65.1% of the new entity, and has signed on with two partners: PCCW-HKT, the telcos owned by Richard Li (son of Hong Kong corporate titan Li Ka-shing); and Shenzhen-based online travel agent Ctrip.
PCCW-HKT will hold 25% and Ctrip 9.9%.
Li is known as the investor who missed one of technology’s greatest investments by selling a 20% stake in Chinese technology company Tencent to South African media group Naspers in 2001. Li bought the stake in 1999 for around $2 million. As internet companies wobbled in 2000/01, he sold for $12 million.
Li may ruefully note that his new investment may go head-to-head with his former one. Tencent is an investor, along with Industrial and Commercial Bank of China and the operator of Hong Kong’s stock and future exchange, in another of the new virtual banks, notionally called Infinium.
StanChart’s other partner in SC Digital is Chinese online travel firm Ctrip, one of the biggest online travel companies in Asia and owner of Edinburgh-based Skyscanner.
StanChart’s Subberwal says his bank could have gone solo with SC Digital but wanted to bring in partners: a big telco gives reach across digital platforms, while a travel agent adds to the product mix.
“What we are trying to do in the virtual bank is different to what we can do in our conventional bank under our existing licence,” he says. “We are trying to create a proposition that is embedded in our clients’ digital lifestyles.”
StanChart already has an extensive suite of digital products embedded into its existing bank; why does it feel the need to do more?
Subberwal says the established licence precludes StanChart from joint ventures: “You really can’t co-build external products and services. We are also creating a brand-new technology and different operating model, which doesn’t exist in the bank.”
The new cloud-based Hong Kong bank will be StanChart’s first standalone virtual bank. Other parts of the business are watching closely.
Subberwal says: “We are obviously building [it so] the bank has an option to use [the model] in markets outside Hong Kong.”
And the virtual bank’s funky new brand name? Subberwal says there is one, but it remains “a very closely guarded secret”.