Financial Holding Companies Eyeing Internet Banking Entry... Key Issues

A Bold Move for Digital Transformation
Concerns Over Self-Cannibalization Must Be Addressed

[Asia Economy Reporter Kiho Sung] Financial holding companies are pushing forward with the establishment of internet-only banks. While some view this as a clever way to overcome the limitations of traditional banks, others warn it could become a burden. However, as the digital era demands change, the debate is expected to continue for some time.

According to the financial sector on the 10th, the recently the Korea Federation of Banks conducted a survey among financial holding companies regarding the demand for establishing internet banks, with most expressing positive opinions. Financial authorities are also expected to review the related matters once they receive the compiled feedback from the Federation of Banks.

The reason financial holding companies are exploring plans to establish internet banks is the assessment that existing organizations alone have limitations in digital transformation. A representative from a financial holding company stated, "It is difficult to respond quickly to rapid changes with the existing organization," adding, "Therefore, creating a new organization different from the existing one is also considered one possible response."

From the perspective of financial consumers, internet banks operated by financial holding companies could serve as an alternative to the recently decreasing number of offline branches. It is also expected to alleviate the concerns of consumers who have avoided existing internet banks due to trust issues. In particular, one of the purposes of establishing internet banks?expanding mid-interest loans?can be promoted based on the trust and know-how of existing banks. By utilizing existing customer data and large-scale capital, they calculate that they can gain an advantage in the competition for innovative finance.

However, there are also criticisms that the establishment of internet banks by financial holding companies may not bring significant effects. This is because commercial banks already have fully equipped nationwide branch networks and mobile applications for business operations. There is also concern about cannibalization of existing mobile banking services.

It is also pointed out that the financial authorities face difficulties in actively supporting the establishment of internet banks by financial holding companies. Professor Jiyong Seo of the Department of Business Administration at Sangmyung University said, "Since the introduction of open banking, financial holding companies feel that they are only providing their customers' big data," adding, "It is worth considering thoroughly in terms of revitalizing the organization and business expansion."

Professor Seo added, "However, given the financial conditions in Korea, it is believed that having about three internet banks is sufficient," and "Even if additional internet banks are established, there is a high possibility that big tech companies will enter the market, so obtaining approval from financial authorities may not be as easy as expected."