Financial Holding Companies Enter Internet Banking... Mixed Expectations and Concerns

A Bold Move for Digital Transformation
Concerns Over Self-Cannibalization Must Be Addressed

[Asia Economy Reporter Seong Giho] Financial holding companies are joining hands with the Korea Federation of Banks to push for the establishment of internet-only banks. While some view this as a clever way to overcome the relatively "heavy" organizational culture of traditional banks, others warn it could become a burden within the holding companies. With the digital era upon us, it is expected that the debate will continue for some time as the growth of internet banks cannot be ignored.

According to the financial sector on the 9th, the Korea Federation of Banks recently conducted a survey among financial holding companies regarding the demand for establishing internet banks, with most expressing positive opinions. The financial authorities are also expected to review the related matters once they receive the compiled feedback from the Federation.

The reason financial holding companies are exploring plans to establish internet banks is the assessment that existing organizations alone have limitations in driving digital transformation. Additionally, since the launch of open banking services, banks have been unilaterally providing their big data to internet banks. The calculation is that leveraging existing customer data and large-scale capital could provide an advantage in the competition for innovative financial services.

A representative from a financial holding company stated, "It is difficult for existing organizations to respond quickly to rapid changes," adding, "Therefore, creating a new organization different from the existing one is also considered a possible response."

From the perspective of financial consumers, internet banks operated by financial holding companies could serve as an alternative to the decreasing number of offline branches. It is also expected to alleviate the concerns of consumers who have avoided existing internet banks due to trust issues. In particular, one of the founding purposes of internet banks?expanding mid-interest loans?can be promoted based on the trust and know-how of traditional banks.

However, there are also criticisms that the establishment of internet banks by financial holding companies may not bring significant effects. This is because commercial banks already have fully equipped sales networks nationwide, including branch offices and mobile applications. There is also concern about cannibalization of existing mobile banking services.

It is also pointed out that the financial authorities face difficulties in actively supporting the establishment of internet banks by financial holding companies. Professor Seo Jiyong of the Department of Business Administration at Sangmyung University said, "Since the introduction of open banking, financial holding companies feel that they are only providing their customer big data," adding, "It is worth considering from the perspective of revitalizing the organization and business expansion."

Professor Seo added, "However, given the financial environment in Korea, it is believed that having about three internet banks is sufficient," and "Even if additional internet banks are established, there is a high possibility that big tech companies will enter the market, so obtaining approval from financial authorities may not be as easy as expected."

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