Regional Financial Groups Also Accelerate 'Digital Transformation'

DGB Financial, Mobile App Customers Increased by 30% Last Year to 1.22 Million

[Asia Economy Reporter Yu Je-hoon] As the 'digital competition' between commercial banks and big tech intensifies, regional financial groups that have not shone in the competition are now making swift moves.

According to the financial sector on the 16th, the number of mobile application customers of subsidiaries under DGB Financial Group as of the fourth quarter of last year was recorded at 1.22 million. This is a 30.6% increase compared to the previous year. Although it is difficult to arithmetically compare this with commercial banks and internet banks, whose mobile app subscribers are around 10 million, the growth rate is steep, according to industry evaluations.

As the number of consumers using mobile apps increases, related business performance is also expanding. In the case of DGB Financial, non-face-to-face won-denominated loans, which stood at 641.2 billion KRW in the fourth quarter of 2020, increased by about 66% to 1.0674 trillion KRW in the fourth quarter of last year.

BNK Financial Group is also achieving results in digitalization. Last year, the number of mobile app subscribers reached 3.07 million, an 8.1% increase from the previous year, and the proportion of non-face-to-face channels in credit loans doubled from 35% the previous year to 76%, showing considerable achievements.

The reason regional financial groups are accelerating their non-face-to-face and digital transformation is to respond to the fierce offensive from commercial banks and internet banks. The three major regional financial groups (BNK, DGB, JB) unanimously declared digital transformation in their New Year's messages this year. A banking industry official said, "Commercial banks and big tech companies operating nationwide are further penetrating their territories through non-face-to-face and digital transformation," adding, "Regional banks have no choice but to speed up digital transformation to strengthen profitability and secure future growth engines."

However, compared to 'nationwide' financial groups, regional financial groups are still at a disadvantage in digital transformation. The combined total assets of the three major regional financial groups (BNK, DGB, JB) amount to about 296 trillion KRW, which does not reach the approximately 399 trillion KRW of Woori Financial Group, ranked fourth among commercial banks. This structure inevitably causes difficulties in various aspects such as digital platform development and operation, and financial product management. Moreover, recently, challenges from big tech based on platforms have become fierce.

The Korea Institute of Finance recently pointed out in a report the necessity of ▲establishing a collaboration system with big tech and ▲operating branch networks in a hub and spoke manner regarding the digitalization of regional banks. It emphasized that while strengthening digital competitiveness through collaboration with big tech, regional financial functions should be enhanced and efficiency improved by operating branches in a hub-and-spoke system that distinguishes between hubs and surrounding areas.

Lee Byung-yoon, Senior Research Fellow at the Korea Institute of Finance, said, "Digital transformation is an irreversible trend, but regional banks lacking capital strength inevitably face difficulties in direct competition with commercial banks," adding, "They need to strengthen digital competitiveness through collaboration not only with big tech but also with small fintech companies."