Fintech seen as possible answer to Korean banking 'oligopoly'

Finance

Published: 02 Mar. 2023, 16:32

Fintech seen as possible answer to Korean banking 'oligopoly'

Bank customers use ATMs in Seoul on Dec. 27. [NEWS1]

Fintech firms may help break the banking "oligopoly" in Korea, the government believes, as the smaller, nimbler companies could be more responsive to the needs of the customers.

Financial regulators are reviewing measures to address what they claim is an oligopoly of five commercial banks: KB, Shinhan, Hana, Woori and NongHyup.

The regulators were particularly incensed when the banks paid out huge bonuses this year after making record profits, as individuals and corporations struggled with higher interest rates.

Measures considered by the regulators include increasing the number of banks and intensifying competition among the existing institutions.

One possibility is breaking down the barriers between finance and tech companies.

“We will review ways to promote competition by breaking down sales barriers between finance and IT,” said Financial Services Commission (FSC) Vice Chairman Kim So-young in a meeting with financial organizations late last month.

Financial Services Commission (FSC) Vice Chairman Kim So-young speaks at a press conference held in central Seoul on Feb. 24. [YONHAP]

Fintech companies are less than enthusiastic about becoming banks. They note the entrenched state of the big banks, complicated regulations and the availability of better opportunities.

“We plan on establishing strategic alliances with banks but not directly enter the business,” said Kang Soo-jin, a spokesperson for Fint, an online investment advisor. “A lot of fintech firms struggled from receiving investment last year due to the weak market, and they are feeling uncomfortable sizing up the business at this point.”

“We aren’t taking it into consideration because it’s difficult to find a room among the existing internet banks, and there are too many regulations in the bank industry,” a source from a fintech firm spoke with anonymity.

“There’s no need to start bank service because there are a lot more interesting businesses,” said an employee at a major cryptocurrency exchange company.

The five commercial banks made 74 percent of all loans in the country and had 63 percent of all deposits as of the end of last year.

“Banking itself isn’t that attractive because it’s difficult to compete against commercial banks in terms of the funding size,” said a source from a card company who spoke on the condition of anonymity. “Having the right to open an account, like banks, is the long-cherished wish instead of entering bank business.”

Competition has been on the decline since the 1997 Asian financial crisis. To avoid chain bankruptcies, the government pushed mergers and acquisitions among banks.

It may be more effective to increase the competitiveness of internet banks through deregulation.

“As stability is crucial in banking, the industry may weaken if the number of service providers blindly increases,” said Seok Byoung-hoon, an economics professor at Ewha Womans University. “Raising the competitiveness of internet-only banks through deregulation is more realistic.”

Internet banks are prohibited from providing certain services, including corporate loans, and are advised to provide loans to customers with mid to low credit ratings.

“It won’t be easy to break the oligopoly structure even if new banks enter the industry because of the history of the five commercial banks, which is related to their corporate credit rating,” said Kim Mee-roo, a researcher at the Korea Development Institute. “But internet banks, which already have low profitability, could be affected if new banks focus on services provided by the internet banks.”

BY JIN MIN-JI, KIM NAM-JUN [jin.minji@joongang.co.kr]