Branch banking going the way of the dodo with digitization
Banks are closing branches and opening smaller digitized outlets in an effort to save money.
As of the end of 2021, 6,094 bank branches were operating in Korea, down 4.9 percent on year, according to a report from the Financial Supervisory Service (FSS) in March. A total of 331 branches were shut last year and 20 new branches were opened. Almost 80 percent of the closings happened in major cities.
"Keeping all the brick-and-mortar branches in the rapidly digitizing era is not reasonable," said Kim Ja-bonn, a senior research fellow at the Korea Institute of Finance. "Digital transformation is ongoing, and it will be a matter of how rapidly and to what extent they close branches. Banks are making the choice because an efficient customer interaction takes place where there are the most customers."
In 2021, Korea had 17.32 million registered online banking users, up 18 percent on year. The total transaction volume for internet banking was 70.6 trillion won ($55 billion), up 19.6 percent, in the same period.
At the same time, banks are opening branches together with others banks as customers complain about bank closures.
Banks are opening digitized outlets inside retailers.
The locations are equipped with machines, like the smart teller machines, through which customers can complete about 50 types of translations. They include opening a bank account, creating a credit card and applying for unsecured loans. Customers can also digitally connect with a bank clerk through the machine.
KB Kookmin Bank opened a digitized branch inside a No Brand retail store in Gangnam Terminal in southern Seoul in May. Shinhan Bank opened a digitized branch with GS The Fresh supermarket in Gwangjin District, eastern Seoul, in April, and Hana Bank opened a branch in a CU convenience store in Songpa District, southern Seoul, in October last year. Hana Bank and CU opened a second joint store in Anyang, Gyeonggi last month.
The total number of daily banking services completed at the CU's joint Songpa branch quadrupled, compared to before when the convenience store only had ATM machines, according to BGF Retail, which runs CU convenience stores.
Total transactions using a Hana card at the CU store in Songpa grew 15.4 percent on year in April, according to BGF Retail.
"Acceleration of digitization is imposing huge impacts on bank closures," said Park Hyun-min, a spokesperson for Hana Bank. "More people are using smartphones for banking, and that change of behavior accelerated during the pandemic as people sought non-contact services."
"In the past, digitized stores were mostly limited to unmanned branches," said Hur Woong, a spokesperson for KB Kookmin Bank. "But at the current stage, which is still the initial phase of bank digitization, we are making various attempts, like collaborating with companies from different businesses, to test how these different types of banks work out."
As banks continue to shut branches, the FSS vowed to make the process for difficult.
In a report released last year, the FSS said it will encourage banks to keep a branch if its closure is seen causing a major inconvenience to customers. It said a study on the impacts will be conducted by external experts without related interest.
The report added that the FSS will enthusiastically support banks to operate joint branch with other financial institutions.
In response, Hana Bank and Woori Bank opened a shared branch in Yongin, Gyeonggi, in April.
They each use half the space to serve customers. Only four people in total work at the branch from 10 a.m. through 3 p.m., shorter than the usual 9:00 a.m. through 3:30 p.m. operating hours.
"Hana Bank and Woori Bank recently closed a branch in Yongin, so we came up with an alternative branch for customers in the region," said Park from Hana Bank. "Solely paying for rent for the first floor of a big building causes a lot of pressure when there are hardly any customers. Splitting that cost raises efficiency."
He added that chasing after the most efficient operational method is inevitable as the "total pie for banking in Korea is limited, so bank profit can't grow infinitely."
KB Kookmin Bank and Shinhan Bank are also considering opening joint locations in Yangju in Gyeonggi and Yeongju in North Gyeongsang this year.
Shared banks are also operated abroad, including in Britain and Japan.
The Bank Hub opened in Rochford, Britain in April last year. Managed by the Post Office, five major banks share a branch, offering walk-in appointments for customers. These joint branches are expanding across Britain, including in west London and North Yorkshire.
In Germany, Frankfurter Volksbank and Taunus Sparkasse opened a joint branch in 2019.
Other countries with shared banks include Japan and Belgium, according to a report from Hana Bank Hana Institute of Finance.
"Shared banks have advantages, but the subject of who is in charge of a branch is unclear," said Kwon Yong-suk, a researcher from the institute. "And the sales environment may aggravate from intensified competition between the banks that share a branch as comparing financial products is easier."
BY JIN MIN-JI [firstname.lastname@example.org]