Reasons for Slow Progress in Bank IT Services... 'Eobmuwitjaekjedo' Regulations as Obstacles

[Asia Economy Reporter Eunju Lee] Banks have been diligently emphasizing ‘digital’ and ‘IT’ to enhance service convenience. However, users of banking apps still experience inconvenience. The apps often lag, and the menus are cluttered, causing users to sometimes lose their way. Compared to banking apps provided by big tech companies, which are inherently IT firms, there are still many inconveniences.

So why is it that banks, despite having so many ‘assets’ and ‘money,’ can only provide this level of service? Is it due to the slow pace of change and conservatism in the financial sector? Or is it an inevitable limitation of traditional financial institutions that are not IT companies by origin? There is a point that needs further consideration. Banks face structural limitations that make it difficult to actively absorb IT capabilities they do not possess themselves. This is due to various regulations.

Large companies usually acquire small and medium-sized enterprises that are already working smartly in a particular field to quickly build capabilities they lack. This is a strategy to rapidly absorb competitiveness. However, in the case of banks, it is difficult to absorb the competitiveness of IT companies due to the well-known ‘eunsan bunri’ (separation of banking and industry) regulation. Banks can only have subsidiaries in 15 financial-related fields such as banking, financial investment, and insurance, according to banking supervision regulations. For example, banks face limitations in enhancing their services by acquiring UI/UX design firms or software development companies to absorb competitiveness.

Moreover, it is not easy to receive help from other companies either. ‘Outsourcing’ cannot be done freely. When outsourcing some tasks with the help of other companies, banks are subject to restrictions under the ‘business consignment’ regulations. Banks face limitations on business consignment under the subordinate regulations of the ‘Financial Services Commission Establishment Act.’ According to these regulations, banks cannot outsource ‘essential tasks’ of financial companies. Even if a bank wants to outsource real estate collateral appraisal tasks to an IT company with excellent data analysis capabilities, it is difficult to proceed due to the prohibition on outsourcing essential tasks.

For a long time, banks have been in a structure where it is difficult to acquire, invest in, or outsource to companies with excellent technology. Because of this, voices both inside and outside the financial sector have long pointed out that free collaboration with big tech and fintech is difficult, causing banks to fall further behind. The problem is the big blur era. Financial institutions’ judgment and negotiation power are increasingly lagging. In a situation where banks have not developed IT capabilities internally, even if they conduct major IT tasks through ‘outsourcing’ or ‘collaboration,’ their ability to manage these tasks is weak. They inevitably face difficulties in thoroughly understanding outsourced tasks and managing risks. Since there is a limit to internalizing capabilities, it is difficult to judge and supervise whether the ‘algorithms’ of the outsourced company or the ‘cloud services’ are competitive and properly operated. This is a vicious cycle of declining competitiveness.

Accordingly, reexamining the role and competitiveness of banks and redesigning regulations have become concerns inside and outside the financial sector these days. There is a growing awareness that it is time to expand banks’ ‘operational scope’ by broadening the investment range and ancillary businesses of financial companies and allowing outsourcing even for essential tasks. Fortunately, financial authorities are also considering changes in regulations by accepting this awareness and gathering opinions from the private sector and academia. The industry’s expectations and interest are focused on how financial regulations will be improved to lead the development and advancement of financial services.

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