[Big Tech, Big Change] Finger Finance Innovation, Changing the Game

Massive Platforms with High Public Familiarity as Weapons
Territorial Expansion from Pay to Bank
Accelerating Infinite Competition in the 'Financial Showcase'

Naver and Kakao, which started as internet portal services, are infinitely expanding into mobility, finance, e-commerce, content, and more. This so-called 'catfish effect' not only brings changes to traditional industries but also causes clashes with existing sectors. As the distinction between traditional industries and ICT industries becomes blurred and barriers between industries disappear, Big Tech, represented by Naver and Kakao, is shaking the framework of South Korea's industrial structure. Asia Economy examines the major industrial changes triggered by Big Tech in mobility, finance, e-commerce, and more.

[Asia Economy Reporter Kim Hyo-jin] In just three years since its launch, KakaoBank, an internet-only bank launched in 2017 amid skepticism, has achieved 12.54 million subscribers (as of the end of last month) and ranks first among financial apps users. According to Nielsen Korean Click on the 21st, KakaoBank's app monthly active users (MAU / combined Android and iOS) in May reached approximately 11.54 million, far surpassing major commercial banks such as KB Star Banking (10.57 million) and Shinhan SOL (8.27 million).

The KakaoBank app, which allows users to open accounts, apply for loans, and even set limits?all with just a few taps on mobile?is regarded as the most prominent example of financial innovation centered on Big Tech (large information technology companies). While fintech (financial technology) development has nudged the outskirts of the financial market, Big Tech is targeting the front yard of the financial market at a level close to an 'air raid.'

With Naver quickly entering through the gateway opened by Kakao, the Big Tech-driven financial big bang is intensifying. Big Tech's greatest weapon is its massive platform based on public familiarity. Existing financial companies are forced to compete fiercely in the 'financial showcase' built by these companies.

◆ From 'OO Pay' to 'OO Bank'... Rapid Financial Innovation = The precursor to the revolutionary change in the financial market landscape was the expansion of simple payment and remittance services represented by 'OO Pay.' According to the Bank of Korea, last year, the average daily usage of simple remittance services was 2.49 million transactions, amounting to 234.6 billion KRW, a sharp increase of 76.7% and 124.4% respectively compared to the previous year.

The Bank of Korea analyzed that the expansion of service usage by large electronic financial operators with high market shares such as KakaoPay and Toss drove this trend. The usage of card-based simple payment services last year also increased by 56.6% in transactions and 44.0% in amount to 6.02 million transactions and 174.5 billion KRW, respectively.

Backed by fintech technology, open banking, fully implemented at the end of last year, is dismantling the concept of a 'main bank' that financial consumers typically hold. Open banking is a service that allows users to view all their bank accounts and perform withdrawals and transfers through a single app.

According to the Korea Financial Telecommunications & Clearings Institute, as of the end of last month, open banking had accumulated 40.96 million subscribers and 65.88 million registered accounts over about six months. Excluding duplicate subscriptions across services, the number of subscribers is 20.32 million, approximately 72% of the domestic economically active population (28.21 million).

During the same period, open banking API (Application Programming Interface) usage reached a cumulative 1.05 billion transactions, averaging 6.59 million transactions per day. Financial authorities expect this to exceed 2 billion transactions annually.

Naver is trying to 'catch up with Kakao' through its subsidiary Naver Financial. Naver Financial, which is reviewing an application for designation as an 'innovative financial service' by financial authorities to enter the postpaid (credit card) market, completed corporate registration of 'NF Insurance Service Co., Ltd.' last month and is preparing to enter the insurance business.

Following KakaoPay, KakaoPay Securities has opened about 1.4 million accounts and has 200,000 fund investment customers to date. Naver Financial's corporate value is already estimated to be close to 3 trillion KRW. KakaoPay is estimated to exceed at least 4 trillion KRW.

A financial industry insider said, "With the implementation of MyData next month, the 'data finance' of tech companies will be further strengthened, and the value of these companies will become a matter of estimation."

◆ "It's hard to make interest income..." Financial Companies Are Anxious = Amid such rapid environmental changes, existing financial companies are increasingly worried. Banks facing profitability deterioration have especially complex concerns.

The Korea Institute of Finance forecasted in its '2020 Banking Industry Outlook and Challenges' report that the growth rate of domestic banks' loan assets this year will be in the low to mid-5% range, lower than last year. This is due to government policy focusing on strengthening corporate finance and curbing household loans centered on mortgage loans.

Accordingly, banks' profitability is expected to decline to around 7% in terms of return on equity (ROE). It is difficult to offset the shortfall in interest income through investment products due to various sales accidents and regulatory restrictions.

The Korea Institute of Finance warned banks to be mindful of issues such as data sharing and predatory price competition using market dominance when Big Tech companies enter the financial industry. The institute also predicted that banks will experience disruptive changes unlike those in the past and that their role will shrink to that of 'financial intermediaries.'

Furthermore, the Korea Institute of Finance analyzed that if the MyData industry promoted by financial authorities is activated, the movement of main customers will greatly expand, advising banks to create new business models through partnerships with various partners.

Major commercial banks are struggling through digital-based work innovation, branch consolidation, and ongoing workforce restructuring. In particular, they are competing to significantly strengthen the non-face-to-face asset management (WM) sector and create new markets.

An official from a commercial bank said, "Banks are so large and their systems are so solid that there are physical constraints in improving their structure," adding, "The key is how quickly they can change."

This content was produced with the assistance of AI translation services.