[1mm Financial Talk] Specialized Financial Products for Military Personnel and New Parents Gain Attention... Social Contribution and Lock-in Effects

The banking sector is focusing on financial products targeting specific groups such as military personnel, newlyweds, and parents. Although these products may not be highly profitable due to relatively high interest rates or various additional services, banks see a dual benefit in combining socially significant contributions with 'lock-in' effects that help retain new customers.

▲Nara Sarang Card

According to the financial sector on the 24th, banks are paying close attention to the upcoming bidding competition for the third phase of the Nara Sarang Card project. The Nara Sarang Card is issued during the military service physical examination and serves as an electronic passbook for the government to provide various allowances and travel expenses to conscripts until they complete their reserve duties. It is also used as a military service certificate or discharge certificate.

During the first phase (2005?2015), Shinhan Bank (Shinhan Card) was selected as the operator, while the second phase (2015?present) has been operated by KB Kookmin Bank (KB Kookmin Card) and IBK Industrial Bank of Korea (BC Card). The contract period for the second phase operators ends next year, and recently, the Ministry of National Defense reportedly informed the banking sector that the bidding for the third phase will proceed as scheduled this year.

Since the Nara Sarang Card is a product for military personnel, it offers a wide range of benefits. For example, KB Kookmin Card’s Nara Sarang Card provides up to 20?35% billing or rebate discounts at major demand points such as military marts, transportation, coffee shops, and cinemas. This discount rate is notable compared to general check cards, which rarely exceed 5%. There is no requirement for previous month’s usage. Additionally, KB Insurance offers free group insurance enrollment, among other benefits. KB Kookmin Bank also sells the 'KB Soldier Tomorrow Preparation Savings' with an annual interest rate of up to 4.50%.

Despite seeming unprofitable on the surface, banks are focusing on the bidding because of the lock-in effect of this product. Since most conscripts are young adults starting their social lives, they are likely to continue transactions with the bank that issues the Nara Sarang Card. As of 2022, the annual number of conscripts is about 186,000. The deposits (receipts) they receive are also substantial. Shinhan Bank, the first operator, reportedly gained about 2.9 million new customers during its operation period.

A financial sector official said, "When Shinhan Bank was solely selected as the first operator in 2005, it enjoyed a significant lock-in effect. Although there are costs such as operating expenses, banks will actively participate because these products also have a social contribution aspect."

Such dual-benefit financial products are not limited to military personnel. Recently, as social concerns about low birth rates and aging populations have grown, products targeting newlyweds and parents have also been introduced. BNK Busan Bank recently launched the 'BNK Baby Angel Savings,' which offers a basic interest rate of 2.00% per annum and up to 5.50 percentage points in preferential interest rates for childbirth and multiple children. Customers who previously subscribed to the marriage-specialized 'You’re the Only Solo (SOLO) Savings' can receive an additional 0.3 percentage points, bringing the maximum interest rate to 8.0% per annum.

Hana Bank’s 'Hana Childcare Savings,' available for a limited time until the end of this year, offers a basic interest rate of 2.00% per annum. Customers receiving various child-rearing allowances through a Hana Bank deposit account or pregnant women receive an additional 2.00%, and multi-child families can receive up to 2.00% preferential interest. If other conditions such as the child future protection pledge (1%) are met, the maximum interest rate reaches 8.0% per annum. This is also interpreted as reflecting both social contribution aspects and the lock-in effect for childbirth customers.