IT firms get serious about financesIT companies are aggressively expanding into the financial market, introducing a variety of banking services that do not require mobile banking systems or credit cards.
At the heart of the IT expansion in the financial market are China’s Alibaba and Tencent.
The world’s largest e-commerce company Alibaba created its own payment system Alipay, in which users can transfer money, make mobile, online and offline payments and use shopping coupons through a charging system by creating an Alipay account online.
It also started the online money market fund (MMF) Yu’E Bao so that users can make payments and manage their assets using Alipay and Yu’E Bao. The company had invested 91 trillion won ($89.07 billion) as of April, making it the largest MMF in China.
Along with Alibaba and Tencent, ICT companies such as PayPal, Google, Amazon and Facebook are attempting to replace banks with their own payment systems.
The world’s largest social network service Facebook has introduced a small savings service in the United States and Singapore, allowing users to keep money on their Facebook accounts.
Google allows users to keep money online in their email accounts and is preparing to expand the financial services it offers through Google Wallet.
The nation’s largest mobile messenger KakaoTalk is jumping on the bandwagon and will debut its Bank Wallet Kakao in the second half of the year, which experts say could impact the financial market in a major way.
The service will be available to all 37 million KakaoTalk users. Banking industry observers expect that more than one million users will begin using it this year.
Management consulting company Accenture predicted in its latest report Banking 2020 that IT companies’ expansion into the financial market will grow faster as regulations are loosened. It also predicted that transactions by nonfinancial companies will make up one-third of the U.S. market in 2020.
IT companies can diversify their sales through financial services. For instance, immigrants can use SNS banking to send money back home instead of using a traditional bank, which has higher commission fees.
According to research firm Gartner, the global mobile payment market will expand to $721 billion in 2017 from $235.4 billion. Remittance accounts for 71 percent of total transactions. IT companies entering the market with remittance services could bring in considerable profits.
Bank Wallet Kakao is an expansion of the prepaid money service on a KakaoTalk account.
Currently, 15 commercial banks, such as Woori Bank, Kookmin Bank, Shinhan Bank and Korea Exchange Bank, will partner with Kakao to introduce the system.
It allows users to save a small amount of money that they can transfer or use to make offline and online payments. Users can make payments of up to 500,000 won using Bank Wallet Kakao and can transfer up to 100,000 won per day to other Kakao users. The service can be used online and at offline stores that have installed a near-field communication device.
“It will be used mostly in saving money to transfer or sending gift money for certain occasions,” said Lee Soo-jin, a spokesman for Kakao Corporation.
Kakao is following the advancement of financial payments, which have evolved from face-to-face transactions at counters to ATMs to online and mobile banking.
For consumers, the new forms of payment are convenient because they don’t require a complicated authentication process.
As financial institutions lagged in making their services more mobile, IT companies aimed at the niche market instead.
However, there are parts of IT companies’ banking systems that need improvement.
The main issue is security, as there is a risk of passwords being hacked in the case of Bank Wallet Kakao, which users can access easily by registering with an authentication certificate and bank account. The easy access could lead to new scams in which people request money transfers by assuming false identities.
According to a survey by market research company Yankee Group, only 10 percent of U.S. consumers surveyed said they would use Facebook’s financial services.
“It is due to the issue of security and the leakage of personal information,” said Jordan McKee, an analyst at Yankee Group.
“There are positive aspects such as the payment methods being diversified and thus a new ecosystem being created,” said Kim Seung-joo, a professor at the Graduate School of Information Security at Korea University. “However, strong security measures such as fraud detection systems should be established first.”
“Although it is a huge trend - IT companies entering the banking industry - it will take a long time to spread in Korea due to financial regulations and awareness about private information leakage,” said Shim Soo-min, a research fellow at Digieco at KT economic research institute.
BY kim jung-yoon AND sohn hae-yong [email@example.com]