[1mm Financial Talk] Banks Focus on Winning Military Loyalty... Why They Are Concentrating on Nara Sarang Card

Selection Process for the Third-Term Operator Begins
Securing a Base of 200,000 Young Customers Annually
Despite More Operators and Shorter Terms, the Six Major Banks Go All-In
Banks Prepare in Advance with Military-Exclusive Products and Higher Interest Rates

The selection process for the 'Nara Sarang Card,' a military-exclusive check card, has begun, putting banks on edge. A fierce competition has started over who will participate and what additional services will be offered. To win the loyalty of soldiers, banks have preemptively launched military-specific products and even raised interest rates. Banks refer to this as the '10-year war.' Although the contract period has been shortened to a maximum of 8 years, the sentiment is that they cannot afford to miss out this time either.

According to the financial sector on the 3rd, the Military Mutual Aid Association C&C, the operator of the Nara Sarang Card, will accept bids for the selection of business operators from the 24th to the 28th. At the business briefing held on the 27th of last month, when bidding eligibility was granted, a total of nine banks, including commercial and regional banks, attended. However, the competition seems to be reorganizing around the six major banks: Shinhan Bank, KB Kookmin Bank, Hana Bank, Woori Bank, NongHyup Bank, and IBK Industrial Bank of Korea.

Commercial banks showed enthusiasm even before the business announcement was made. A representative from a commercial bank said, "Most have already formed separate teams early on to prepare," adding, "There will be no banks that do not participate in the bidding."

In fact, commercial banks have been putting in effort by launching military-related products and benefits in advance. Shinhan Bank, the first-term operator, was the earliest among commercial banks to establish a dedicated team and has been operating military-exclusive loans and deposit products with preferential interest rates since June last year. In January this year, it also raised the maximum interest rate of the Soldier Tomorrow Preparation Savings to 8.0% per annum. Hana Bank has provided loans for members of the Military Mutual Aid Association and recently introduced a military officer-exclusive jeonse (key money deposit) loan product.

IBK Industrial Bank, the second-term operator, conducted consulting at the end of last year to strengthen the digital competitiveness of the related business. Another operator, KB Kookmin Bank, also raised the maximum interest rate of the Soldier Tomorrow Preparation Savings to 8.0% per annum (for basic livelihood security recipients) last year and has been providing non-financial support such as financial accident prevention education for soldiers and building small libraries within military units.

Entering its third term, the Nara Sarang Card project is evaluated as having decreased profitability compared to the first and second terms, as the number of operators has increased while the operation period has shortened. The number of operators has increased from two to three, meaning even after selection, they must compete again for issuance. On the other hand, the operation period has been reduced from 10 years to 8 years (5 years basic + 3 years extension possible).

Nevertheless, the banking sector is keen because of the advantage of securing a potential base of customers. The Nara Sarang Card is mandatorily subscribed to by conscription candidates and is used as a salary account and ID card. Most receive the card after undergoing the military physical examination, and according to the Military Manpower Administration, about 220,000 people are expected to undergo the physical examination this year. Operating the business for 8 years would bring in a total of 1.76 million new customers, and even divided among three operators, each would gain an average of 580,000 new customers. The first operator, Shinhan Bank, is known to have attracted about 3.21 million young customers over 10 years.

It is especially analyzed that this can attract males in their early 20s, who are being lost to internet banks, and since they are young adults starting their careers, the potential effects leading to employment and marriage are significant. A representative from a commercial bank said, "Our research shows that once the card is issued, customers tend to maintain their accounts steadily, often leading to salary accounts and mortgage loans," adding, "Since it allows banks to secure a large number of young customers, there is no reason not to participate."

The selection of the Nara Sarang Card operator is expected to be influenced by the practical benefits provided to soldiers. According to the scoring table, 25 out of 100 points are allocated to additional and financial services. Easy issuance also carries a high score. A financial sector official said, "The rest are based on financial structure, management status, and business understanding, but it is difficult to have significant differences among commercial banks," adding, "In fact, collaboration with affiliated card companies within the group is likely to be important."