Big changes to shake up finance

Impeding changes to the financial industry will make banks, which have operated rather too comfortably in an unchanging industry landscape for the past 20 years, scramble to remain competitive.

Local banks have hidden behind four structural problems in the financial industry to avoid competition.

First were barriers to entry.

Banks haven’t had new competitors for a long time. But from next year, new competitors are expected to enter the market with the debut of Internet banks.

Second were divisions in the financial industry.

So far, banks dealt with deposits and loans, insurance companies handled insurance and brokerages handled brokering.

But in the near future, multi-functional shops that handle all of those products will emerge as things like Internet banks, individual savings accounts and easier account switches become more viable.

The financial market has been like a bazaar, with one stall selling rice and another selling meat or vegetables. The industry must prepare for an age of financial supermarkets, where everything can be purchased at the same place.

Clients will soon only need to make one stop to compare different brands of financial products. Sets or packages of products will also become available.

The third problem has been the ability to ensnare clients within a bank.

So far, a client who wants to change his or her main bank had trouble doing so because it was inconvenient to switch existing automatic transfers. But from October, such transfers are only a few clicks away due to regulation changes.

In countries where such account changes were made easier, big changes swept their financial industries.

After account switches became easier in the United Kingdom from September 2013, Barclays lost 80,000 accounts in 2014, according to Hana Institute of Finance.

Smaller banks like Santander and Halifax attracted 170,000 and 150,000 new accounts each during the same period, respectively. Santander offered as high as 3 percent interest on deposit accounts as well as 1 to 3 percent cash back when utility fees were charged to their accounts.

Local banks are making similar moves to keep existing clients. Hana Financial Group for instance is preparing to unveil “Hana Total Mileage Service,” a feature that combines bank deposits, loans, equity accounts, funds and even insurance accounts managed by its affiliates, and will give clients points that can be exchanged for real cash.

Shinhan Bank is offering its key clients fee waivers on Internet and mobile banking as well as ATM usage. It has also offered an extra 1.3 percent in interest to clients who use Shinhan as their main bank account.

Kookmin Bank has also expanded its perks for key clients that include fee waivers and higher interest rates.

The fourth problem was a separation of financial products.

Banks previously only handled deposits and loans. But the individual savings account, or ISA, expected to be introduced from January next year will allow a client to freely switch over to different types of financial products among a range of deposit accounts, equity funds and derivatives products.

Whoever makes higher profit-generating products faster will rule the market.

Banks have even turned their eyes to mid-rage interest loans, which they had previously shied away from. Mid-range interest loans with 6 to 9 percent interest fees will be offered to those with poor credit backgrounds.

Woori Bank’s Wibee mobile loans, for example, have seen robust sales, with over 5,000 loans worth a total 20 billion won ($17.2 million) issued since its debut in late May.

BY LEE HYEON-TAEK, YEOM JI-HYUN [park.jungyoun@joongang.co.kr]