Head of Woori Financial Research Institute: "Different Customer Touchpoints from Big Tech, Worth Competing in Corporate Finance"

[Financial Innovation from the Head of Bank Research Institute]

Choi Gwanghae, CEO of Woori Financial Research Institute

Choi Kwanghae, CEO of Woori Financial Research Institute, is being interviewed on the 18th at Woori Financial Research Institute in Jung-gu, Seoul. Photo by Kang Jinhyung aymsdream@

[Asia Economy Reporter Sim Nayoung] Choi Kwanghae, CEO of Woori Financial Management Research Institute, emphasized in an interview with Asia Economy on the 18th that "it is impossible for financial companies to have the same points of contact as big tech companies," and "each financial company should form contact points with customers in areas where they excel." For example, Woori Bank could take a chance by launching a dedicated platform in its strong area of corporate finance and creating contact points with large and small businesses.

Regarding Woori Financial Group's announcement of a support program for vulnerable groups, he said, "Considering that the government injected funds to help financial companies during the foreign exchange crisis, banks also have an obligation to help customers who have been struggling due to COVID-19," adding, "Leading overseas banks also donate a lot because if society collapses, banks cannot survive either."

The scope of bank business expansion should shift to a 'negative' approach
The UK model, with no legal regulations and decisions made through public hearings, is worth emulating

- The Financial Services Commission announced a relaxation of the separation between banking and industry. How is the level of financial regulation in Korea?

▲ Although platform business has become very important, domestic financial regulations are very strict, creating high barriers. To engage in platform business, integration of information within financial holding companies, hyper-personalization of financial consumers, and acquisition of non-financial subsidiaries by banks are necessary. However, Korean banks find these very difficult. The US also has strong financial regulations but has loosened some parts. In the 1990s, they enacted the Financial Services Modernization Act allowing entry into non-financial sectors, and in 2018, not only financial holding companies but also other private institutions were allowed to share information with each other.

The banks' demand that "big tech companies engaged in finance should be subject to the same regulations as financial companies" should have been addressed earlier by financial authorities if they had accurately understood the regulatory differences between advanced countries and Korea. Even now, narrowing the regulatory gap with advanced countries will naturally resolve the 'tilted playing field' issue between big tech companies like Kakao or Naver and financial companies.

- There are voices in the industry that banks should be allowed to engage in other businesses outside their core operations on a negative basis.

▲ That's correct. Even if banks' ancillary businesses are converted to a negative system, financial authorities will still filter new business approvals once more. Introducing a negative system still involves a filtering mechanism, so banks' possible areas of entry should be broadly allowed. This method is widely used in the UK, where everything is legally open, but procedures such as public hearings are mandatory to create a filtering net. In the UK, there are no regulations when opening a local pub, but in reality, it is difficult to open one. They have to gather a certain number of local residents and hold several public hearings. If the relaxation of the separation between banking and industry is done by specifying only certain industries where banks can enter, it could lead to unreasonable results.

For reference, Woori Financial Group still needs to expand its portfolio in securities and insurance. Unlike other financial holding companies, it has not yet laid the foundation for moving into platform business. The securities company, which can create the most synergy with banks, will likely be the top priority, followed by non-life insurance and life insurance. The 'digital universal bank,' a super app where all financial services are available in one app, must also start with this groundwork.

Choi Kwang-hae, CEO of Woori Financial Research Institute, is being interviewed on the 18th at Woori Financial Research Institute in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

- If the separation between banking and industry is relaxed, which fields can Woori Financial Group enter?

▲ The difference between financial companies and big tech lies in contact points. Kakao has messenger, Naver has search. Financial companies cannot create the same contact points as big tech. They must create contact points with customers in areas where they excel. Woori Bank has strengths in corporate finance. For example, if corporate finance services are platformized, they could do well. Just as ordinary people enter KakaoTalk daily, corporate managers should find the platform attractive. Many corporate business areas such as retirement pensions, accounting, real estate, and finance can be included in the platform.

Overseas, card companies also provide interesting services. They offer systems to handle corporate clients' business expenses. The most cumbersome part of managing business expenses is knowing who spent money and where. Providing this service is convenient for companies.

- Financial companies must now have digital capabilities comparable to IT companies.

▲ The COVID-19 pandemic accelerated the development of IT technology in financial companies. Even before the pandemic, non-face-to-face services were considered important, but now the perception is different. If financial companies do not properly digitalize now, they will perish. A foreign consulting firm predicted that all financial transactions will become non-face-to-face within five years. Already, individual customers, regardless of generation, including older people, use apps for banking services.

A survey conducted last year by Woori Financial Management Research Institute targeting the 'mass affluent (top 10-30% income)' showed that more than half of respondents would consider changing their main bank if the app is good. This is a critical situation for financial companies. This is why Chairman Sohn Tae-seung goes to Woori Financial Digital Tower daily to check the Woori WON Banking app.

- Discussions on the Basic Act on Digital Assets have begun. Some say that if banks enter the virtual asset market, trust will increase.

▲ If coins are somewhat recognized as assets, leaving them outside finance harms consumer protection. Although there are various conditions, globally, financial companies are allowed to perform custody services, operate exchanges, and sell products. Korea also needs to ease regulations. Woori Bank established a joint venture for virtual asset custody last year with Coinplug.

Choi Kwanghae, CEO of Woori Financial Research Institute, is being interviewed on the 18th at Woori Financial Research Institute in Jung-gu, Seoul. Photo by Kang Jinhyung aymsdream@

- Recently, banks' social responsibility has also emerged as an important issue. Woori Financial Group was the first to announce a 23 trillion won support program for vulnerable groups.

▲ During the foreign exchange crisis, the government injected funds to help financial companies. Although there were concerns about moral hazard among companies at the time, through that process, financial companies and businesses became stronger. As customers have faced difficulties due to the COVID-19 pandemic, financial companies now have an obligation to help the public. Financial companies have also made enormous profits. Even if they save that money, a significant portion will go to taxes, so it should be used to help customers. HSBC also donates a lot in Hong Kong and China. That is how financial companies survive. If society collapses, banks cannot survive either.

- Is this sentiment shared within the group as well?

▲ Around last fall, it became clear that the financial sector would achieve record profits. At that time, issues regarding the public function of finance arose within the group. The Woori Financial Future Foundation, which was recently approved, was created then. Of course, the government and financial sector point out that helping vulnerable groups, especially young people who invested with borrowed money, is problematic. However, by checking whether they have been paying interest regularly, are employed, or are job hunting, banks can assess these individuals. Although they are struggling now, helping those who have potential and are diligent means securing one more future customer from the bank's perspective.