Korea’s financial Big BangKorea Investment Holdings Corp. and Daum KaKao Corp., the country’s largest mobile messenger service provider, reached an agreement to launch the country’s first online-only bank. It is the first case of a financial institution joining up with an IT company to enter the banking business. Mirae Asset and Kyobo Life Insurance are reportedly preparing to launch their own online banking services.
This new business model could bring about sweeping changes to the local financial industry, which has strict divisions of turf in banking, insurance and securities for the last two decades. The lowering of these protective fences and freer competition could make fundamental changes on the financial landscape. Each financial field has been safely protected without having to worry about new challenges. Access to other businesses was blocked and consumers had to jump from one institution to the other in order to invest in various financial investments. Banks, for instance, were strictly for savings and loans. That is why the local financial industry has been frequently criticized for low efficiency and protectionism.
The barriers are coming down. Bank branches are now allowed to sell insurance and securities products. Electronic transfers have also become easier. A new tax revision law allows individual savings accounts that combine investments in stocks and bonds and cash. Online-only bank services would accelerate the lowering of other protective barriers.
Internet banking has been commonplace in other countries since the early 2000s. Since such companies don’t need to set up brick-and-mortar outlets, they can afford to invest more on providing better services. San Francisco-based peer-to-peer company Lending Club has grown into an $8 billion company in just seven years and went public on the New York Stock Exchange last year. The Charles Schwab Bank of the U.S. and Sony Bank of Japan have already been in service for 10 years without physical branches or ATMs. The British government provides policy loans to small and mid-sized companies through the establishment of an online financial service. Alipay, run by Chinese e-commerce giant Alibaba, already offers an online payment service in Korea.
The new Korean online-only bank must be more innovative to survive in a playing field dominated by traditional banks and catch up with foreign counterparts. The government should lift unnecessary regulations to help smooth the establishment of online banking services.
JoongAng Ilbo, Aug. 7, Page 30