Large Banks' Retail Profitability Deterioration Inevitable... What Are the Solutions?

Korea Institute of Finance
'Strategies to Strengthen the Retail Business Competitiveness of Major Domestic Banks' Report

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[Asia Economy Reporter Park Sun-mi] With the entry of big tech and fintech companies into the financial industry, domestic major banks' retail businesses are facing market contraction and profitability deterioration, highlighting the need for strategic efforts such as strengthening asset management capabilities.

On the 30th, Kim Woo-jin, Senior Research Fellow at the Korea Institute of Finance, stated in the report "Measures to Strengthen the Competitiveness of Domestic Major Banks' Retail Businesses" that the market size contraction and profitability deterioration of key retail businesses such as credit loans, foreign exchange, and mortgage loans of domestic major banks are inevitable.

He said, "Major fintech companies such as KakaoBank and Toss are leading changes in key areas of the financial market including payment, remittance, loans, and foreign exchange by providing new types of financial services," adding, "Big tech companies secure abundant customer data based on their platforms and have loyal customers through brand recognition, making competition with banks inevitable."

Accordingly, for domestic major banks to strengthen the competitiveness of their retail businesses, it has become urgent to devise strategies that either expand the market size or maintain market share within the contracted market.

Researcher Kim advised, "First, to expand new markets, it is possible to consider strengthening asset management (WM) capabilities and actively expanding overseas expansion focused on retail businesses," adding, "It is necessary to consider converting corporate clients into private banking (PB) clients or the full-scale introduction of customer-centric butler systems widely used in PB businesses in advanced countries such as Europe. To this end, efforts should be made to strengthen the linkage between SME finance and PB organizations and to recruit PB specialists."

He continued, "Considering that market expansion through domestic demand alone is difficult, globalization should be utilized not simply as a means to expand revenue sources or a trend, but as an important tool to strengthen retail businesses."

Meanwhile, to maintain and strengthen existing market dominance, it is also necessary to actively practice customer-centric management such as changing the method of building customer data under the slogan 'Retail is Decile,' implementing the 'Know Your Customer' project, and introducing a customer ombudsman system.

He explained, "The 'Know Your Customer' project is not merely about investigating the bank's market competitiveness but aims to analyze financial consumers' tendencies and transaction behaviors in detail and implement service differentiation strategies based on customer experience," adding, "Upgrading the bank's infrastructure by including related variables in key performance indicators so that branch employees can properly understand customer characteristics is also a method."

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