In the Era of Infinite Competition in the Financial Sector, the Roles of Financial Companies and Government

The 50th Korea Insurance Research Institute Industry-Academia Seminar
Discussion on Factors Intensifying Competition in the Financial Sector and Countermeasures

"The financial industry is entering an era of intense competition. Not only are the barriers within the financial sector breaking down, but non-financial sectors are also merging into financial services. Competition among companies will intensify going forward."

On the 28th, Byung-Yoon Lee, Senior Researcher at the Korea Institute of Finance, made this claim at the 50th Industry-Academia Seminar held at the Korea Insurance Research Institute in Yeouido, Seoul, under the theme "Changes in the Financial Environment and Future Response Strategies for the Financial Industry."

He cited digital technology as the reason for the increased competition within the financial sector. "Previously, there were clear boundaries between sectors such as banking and insurance, but with digital finance and MyData, cross-industry operations are expected to expand," he explained. "Barriers within the financial sector are disappearing as various financial products are sold on platforms." He added, "Services that merge finance with finance, as well as finance with non-financial sectors, are emerging."

There was also a claim that the government has promoted competition. Senior Researcher Lee analyzed, "Our financial companies have been weak in overseas expansion and have maintained a domestic market-based business structure, which has led to social dissatisfaction as they earn interest income from the public." He continued, "In response, financial authorities have introduced open banking, internet-only banks, and are implementing policies to strengthen competition, such as converting regional banks into commercial banks and promoting a fourth internet-only bank."

Senior Researcher Lee pointed out, "Through competition, financial consumers can receive cheaper and higher-quality services and also benefit from customized services enabled by the combination of financial data." However, he warned, "As competition intensifies, banks' interest income and new insurance subscriptions may decline, potentially reducing the profitability of existing financial companies." He added, "If profitability falls, companies may recklessly increase the proportion of risky asset investments, which could also deteriorate financial soundness."

[Image source=Korea Insurance Research Institute]

Professor Min Se-Jin of Dongguk University, who participated in the panel discussion that day, suggested considering both the financial companies' and the government's responses to changes in the financial environment. Professor Min said, "While working at the Financial Services Commission's Innovation Finance Review Committee, I felt the limitations of positive regulation (pre-regulation)." He added, "If you are trapped within a framework, innovative ideas simply cannot emerge." He further stated, "The public service sector has a responsibility to preemptively block risks to protect consumers, which is desirable to some extent, but currently, existing financial companies are helpless against the fintech (finance + technology) industry's advances. A change in the framework is necessary."

Seong-Il Choi, Research Fellow at the Korea Insurance Research Institute, mentioned an additional factor affecting changes in the financial environment during the discussion: "Global financial environment uncertainty has increased due to protectionism amid global hegemonic competition." He added, "Since the 2008 global financial crisis, the world has worked to stabilize the financial system through forums such as the Group of Twenty (G20) and the Financial Stability Board (FSB), a global financial regulatory body, but now risk management and supervision are increasingly becoming areas where each country fends for itself."

The Korea Insurance Research Institute's industry-academia seminar has, over its 50 sessions, featured more than 60 presenters from academia, industry, and the institute itself, with over 160 discussants participating. It has covered a wide range of topics including consumers, pensions, insurance channels, digital insurance, artificial intelligence (AI), and insurance financial systems.