"Regional Banks Must Collaborate with Big Tech and Fintech to Enhance Competitiveness"

[Asia Economy Reporter Kiho Sung] There is an opinion that local banks need to cooperate with big tech (large information technology companies) or fintech to enhance their competitiveness.

According to the financial sector on the 27th, Lee Byung-yoon, Senior Research Fellow at the Korea Institute of Finance, stated in his recent article "Management Environment and Future Tasks of Local Banks" published in 'Financial Brief' that "local banks play a role in providing high-quality financial services to local residents and small and medium-sized enterprises in the region."

Lee said, "Korean local banks have generally shown better performance in profitability and soundness than commercial banks based on specialized product development through regionally focused management, but their performance has been worse than commercial banks since 2016."

This is analyzed to be because while other banks invested heavily in digital transformation riding the wave of the 4th Industrial Revolution, smaller local banks struggled with digital transformation, and new types of companies such as fintech entered the financial industry.

Lee emphasized, "Local banks can supplement their lacking digital competitiveness and receive help in sales and marketing by strengthening partnerships with fintech and big tech," adding, "Policy authorities also need to consider ways to induce this."

He also added that local bank holding companies with two bank subsidiaries should explore ways to jointly use information technology (IT) systems.

Even though non-face-to-face services have recently become active, he advised that instead of indiscriminately reducing branches, efficiency should be improved through a 'hub-and-spoke' strategy that divides branches into 'hub branches' performing all banking tasks and 'spoke branches' handling simple tasks such as deposits and withdrawals.

He also suggested that, in the long term, the regional economy needs to be revitalized.

Lee explained, "The fundamental reason local banks are struggling is that the regional economy is relatively stagnant compared to the metropolitan area," and added, "Policy authorities should use policy measures with a balanced perspective considering fair competition."