(Yonhap Feature) Internet banks poised to become a force to be reckoned with

By Kim Kwang-tae

SEOUL, April 21 (Yonhap) -- Jang Hong-suk got a credit line for a deposit to buy an apartment. All he did was download an app on his smartphone and open an account before applying for a loan.

It took about two hours before Jang got approval for the loan from K-Bank, South Korea's first Internet-only bank.

"I opened a bank account with a 50 million won (US$44,000) overdraft line of credit on my way home from work," said the 30-year-old salaried employee who handles accounting at a foreign company in Seoul.

The simple transaction illustrates an ongoing transformation that could fundamentally change the way people do business with banks in South Korea, one of the world's most wired countries.

Unlike traditional banks, K-Bank does not require its customers to submit financial or other documents for loans as it can automatically collect relevant data from the National Health Insurance Service or the National Pension Service.

Computers screen documents and make decisions for loans.

All of the services of the Internet bank can be done without face-to-face contact with customers and without bank branches, a great relief for many ordinary people who just don't have the time to visit lenders during work hours.

People can open their accounts by showing their drivers' licenses or resident registration cards -- South Korea's equivalent to a social security number in the U.S. -- to a bank official via video chat for verification of identity.

K-Bank is open around the clock, offering services ranging from ordinary deposits to loans with more favorable interest rates than the ones provided by brick-and-mortar banks.

Jang said he withdrew some money from his credit line to make a down payment on an apartment worth 700 million won.

"What I like most about the Internet bank is that I can do my personal banking at any time," Jang said. "That makes the Internet bank very appealing to young people, though old people may not like it."

About 40 percent of customers opened accounts between 6 p.m. and 6 a.m. Most customers are in their 30s and 40s, according to K-Bank.

K-Bank -- led by a consortium made up of telecoms giant KT Corp., Woori Bank and 19 other firms -- has so far attracted more than 200,000 customers just two weeks after launching operations.

The development represents ongoing innovation in the banking industry in a way that better serves customers who want to do their banking more quickly and at any time.

Shim Sung-hoon, CEO of K-Bank, struck a chord with customers when he vowed to provide ubiquitous banking services in a country where customers have so far followed the rules set by traditional banks.

"K-Bank will open a new era of banks everywhere based on technology and will be at the forefront of financial innovations by offering convenient and unique services," he claimed.

Visiting offline banks can be a hassle for many people as banks close at about 4 p.m. Some people go to a bank during their lunch break to take care of business, but they usually have to wait in long lines to see a teller.

Reflecting on this, Do Binnali, a 30-year-old office worker, said she is satisfied with the Internet bank as she can open an account quickly without going to a bank branch, something she could not do during normal business hours.

Yim Jong-yong, chairman of the Financial Services Commission, has voiced hopes that K-Bank would bring innovation to the country's financial sector beset by slower growth and slim margins.

The financial regulator has also granted final approval to another Internet-only lender, Kakao Bank, setting the stage for fierce competition in the banking industry.

South Korea's top mobile messenger operator Kakao Corp. is among the major shareholders of Kakao Bank.

Brick-and-mortar banks have also expanded their mobile banking services in recent years to try to stay relevant as a growing number of people do their banking on their computers or smartphones without visiting bank branches.

Last year, the number of smartphone-based banking service users came to 74.67 million in a country with a population of 51 million, up 15.3 percent from a year earlier, according to the Bank of Korea.

Still, Internet banks are poised to become a game changer in the banking industry, not just a financial storm in a teacup.

Suh Yong-gu, a professor of marketing at Sookmyung Women's University, said Internet banks could bring about a paradigm shift in the banking industry, citing the rapid growth of convenience stores in the country.

"When convenience stores first came to South Korea, people said it's not a big deal," Suh said. Now CU, a major South Korean convenience store chain, has become a major force in the country's retail sector.

The market capitalization of BGF Retail -- which runs the CU convenience store chain -- reached more than 5.2 trillion won (US$4.5 billion).

The number of convenience stores across the country surpassed 30,000 and has seen double-digit growth at a time when the country has long been struggling to cope with a slowdown in growth.

"Internet banks could work as a disruptive innovation" in a way that could eliminate jobs in offline banks and upend their business models, Suh said, listing some possible aspects of fallout of the new institution.

Banks have slashed the number of branches and employees in recent years in a move to cut costs amid fierce competition and falling profits.

The number of bank branches in South Korea came to 7,103 last year, down 175 from a year earlier. The decline is the biggest since 2002 when financial authorities began to collect related data.

Banks also cut their employees by more than 2,248 to 114,775 last year, according to the Financial Supervisory Service.

Globally, the number of bank tellers and retail branches has also fallen in recent years, a decline from growth in the period of deregulation in the 1980s and 1990s.

Jonathan Woetzel, director of the McKinsey Global Institute, said the role of bank and the role of service provider will change because technology means a simple transaction process is no longer as important.

"I think the traditional banking industry has to change. It will no longer be traditional. It will be new banks and they will have new capabilities," Woetzel said in a brief comment to Yonhap News Agency during his recent trip to Seoul.

"We will see the bank of the future. The bank of 10 years from now will probably look very different from the bank that we have today."

Kim Do-jin, CEO of South Korea's state-run Industrial Bank of Korea, said earlier this month that he was "scared" by the initial consumer response to South Korea's first Internet bank.

His comments underscored widespread concerns traditional banks have in the ongoing transformation of the financial sector.

"I can never be confident that all banks in South Korea can survive 10 years from now," Suh said.

entropy@yna.co.kr
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