Ways for banks to surviveThe explosive response to the second online-only bank Kakao Bank underscores the potential value in online platforms in the age of digitalization and automation as the result of the fourth industrial revolution. Kakao Bank exits only in cyberspace without a brick-and-mortar presence. In just 13 days in business, 2.03 million accounts were opened with the bank as of Aug. 15. It took nine years for traditional banks to secure that many users in their mobile community. From its staggering rise, Kakao Bank is expected to soon outnumber the traditional bank’s biggest online subscription record of 7 million.
The bank’s biggest strength is in its messaging app Kakao Talk, a chat app most Koreans at home and abroad use daily. It has been attracting everyday users in its free app platform to its new banking service through free emoticon gifts and other appeals. It capitalizes on the accessibility and familiarity of the everyday users of the chat platform. Kakao Talk has become ubiquitous and indispensable means for everyday communication for Koreans. It brings together the demand and supply and therefore acts as a marketplace. People in the past met in a landmark plaza, but today they are brought together without time and space barriers on the online platforms provided by online and technology names like Facebook, Apple, Amazon, and Naver.
Apple has paved the way in making business out of online community. Apple cannot be pinned down simply as a smartphone maker. It is both software and hardware provider. It provides application interfaces to invite others to develop and offer applications on the iPhone. It has created a huge habitat through its rich app hoard that could meet every user’s needs. The iPhone commands a solid loyalty from its users not just because of its phone quality, but because of abundant platform resources.
The surge of online banks has become a wake-up call to traditional bankers. Banks are incorporating music, games, shopping, and other entertainment sources and offering peer-to-per loans, crowdfunding, and robotic advisers in order not to lose customers to tech-savvy fledgling online newcomers. Internet-based banking takes up 40.7 percent of the transactions in Korean banks. Their competitiveness hinges on the ability to build consumer-friendly online and mobile platform.
Banks have been rushing to refurbish and upgrade their mobile banking apps since the launch of online-only banks. But for the traditional banks to lure consumers to their platforms away from the newcomers, they must be able to provide open space like Apple. They must be able to bring together both the consumers and suppliers of programs so that they could provide inventive and customized financial services. Only when they are open to outsiders, they will be able to come up with creative ideas fast. Big data storing, mining, and applications are possible only with busy and diverse transactions. They can create new value by satisfying consumers beyond financial needs through use of their big data coffers.
Banks will be able to keep their customers only when they feel they could get the same or better service via a handheld device. McKinsey forecast that revenue from retail banking at multinational banks will tumble from 20 percent to 60 percent from current levels by 2025 due to fintech advance. It could become harder and harder for traditional banks to stay in business if they stay complacent.
*Senior research fellow at the Korea Institute of Finance