[Internet Banks 5 Years③] "Played the Role of a Catalyst Properly... The Real Innovation Was Changing the Market and Culture"

Commercial Banks Change Apps and Establish Digital Teams Amid Crisis Awareness
Competition Sparks Over User-Friendly Products
Shift of Initiative to Financial Consumers
"Regulatory Oversight Must Evolve Alongside Banking Industry Growth"

[Asia Economy Reporters Minwoo Lee and Aeri Boo] An analysis suggests that the significant innovation brought about by internet-only banks is not technology itself, but the wave of change and competition they have introduced to traditional banks. As commercial banks hasten their digital transformation and consider user-friendly products, they have laid the groundwork for shifting market leadership from product providers to financial consumers.

On the 24th, experts emphasized that internet banks have triggered changes across the entire banking industry. Yoo-shin Jung, Dean of the Graduate School of Technology Management at Sogang University, explained, "Although internet banks have smaller sales volumes, they have definitely stimulated commercial banks to accelerate digital transformation and demonstrated that the banking sector can shift to a mobile-centric model and grow."

In particular, the expansion among the MZ generation (Millennials + Generation Z) as well as minors is expected to become a significant potential in the future. Kakao Bank’s financial service for teenagers, ‘Mini,’ recorded a cumulative 1.15 million subscribers within just one year of its launch, becoming a service used by one in two individuals in that age group. This means they have preemptively secured their core customer base. Dean Jung stated, "Young generations have been virtually unrelated to finance until now. They used simple payment services for payments and transfers but remained distant from core financial aspects such as deposits, loans, and investments. Internet banks have brought the future forward by attracting the young generation, who are the future leaders, through mobile."

Traditional Banks Following Kakao Bank

As Kakao Bank rapidly captured the future generation, the sense of crisis among commercial banks grew. Consequently, they are rushing to launch financial services targeting teenagers. Shinhan Bank released the ‘Shinhan Mem’ rechargeable prepaid card exclusively for teenagers in October last year, and Hana Bank launched the youth financial application ‘iBuja.’ This app allows parents and children to send and receive money, managing allowances and savings. Kookmin Bank also introduced a similar teen-focused service called ‘Liiv Next’ in November last year.

After Kakao Bank’s groundbreaking design led to great success, banks had no choice but to adopt similar approaches. A representative example is the design that displays accounts as card-shaped icons on the first screen upon opening the app, which has become the standard in the banking sector. As the ‘One App’ strategy of internet banks proved efficient, banks integrated multiple apps with different functions into one. Recently, not only bank apps but also affiliated securities and card companies’ functions have been integrated (KB Financial Group, Hana Financial Group), evolving into lifestyle financial platforms (Shinhan Financial Group).

Commercial banks are also drastically reducing branches to compete with internet banks that have no branch personnel costs. According to data received by People Power Party lawmaker Min-guk Kang from the Financial Supervisory Service, a total of 1,507 domestic bank branches were closed from 2016 to October 2021. Oh Jung-geun, a professor of economics at Konkuk University, said, "Seeing banks reduce branches, partner with telecommunications companies, and create their own platforms indicates that internet banks have played a sufficient ‘scarecrow role.’"

Efforts to avoid falling behind in ‘digital innovation’ have also intensified. KB Kookmin Bank reorganized into a ‘DevOps’ organization that integrates development and operations across eight sectors, including fund services, digital new businesses, and corporate banking. Shinhan Bank is focusing on a ‘platform growth’ strategy. Its group affiliate Shinhan AI is developing a metaverse platform tentatively named ‘Metabest’ and is discussing metaverse collaboration plans with KT, with whom it has formed a strategic alliance.

Consumers with More Choices... Market Landscape Reshaped

As internet banks promoted simple and easy mobile non-face-to-face financial services, commercial banks hurried to build apps and platforms that are easier for consumers to use. Consumers stopped visiting banks, and choices increased. With the emergence of fintech companies that compare and mediate loans, a consumer-centered market has begun to form. While the existing financial market was supplier-oriented with similar choices, now ‘cutthroat competition’ to attract consumers has become inevitable.

Professor Tae-yoon Sung of Yonsei University’s Department of Economics emphasized, "The innovation is not internet use itself but the smooth operation of mobile-based finance, especially the greatly improved accessibility of financial consumers to products like loans. The ability to get loans non-face-to-face is a more important point than technological innovation; it has instilled the perception that loans can be obtained even outside traditional banks, which is a major change." Professor Ji-yong Seo of Sangmyung University’s Department of Business Administration also said, "User convenience in banking transactions has greatly improved."

There is also a view that supervision must develop as these services rapidly expand. A regulatory ecosystem different from that of commercial banks may be necessary. Soon-ho Lee, head of the Banking and Insurance Research Division at the Korea Institute of Finance, said, "Although internet banks’ business scale is still smaller than commercial banks, they could grow to a similar level once they start corporate loans. Since Kakao Bank and Toss Bank have multiple affiliates, issues of fairness and the regulation of separation of banking and industry may need to be reconsidered." Professor Sung also stressed, "The government allowed financial institutions providing technology-based services to emerge more easily, but as entry becomes smoother, soundness issues inevitably arise. Supervision related to soundness to protect consumers should be strengthened even for internet-only banks."