Banks urged to shift to digital banking

By Kim Jae-kyoung

Choi Jung-kiu, head of Asia Pacific Financial Institutions Practices at AT Kearney

SINGAPORE ― Korean banks should revamp their business models and create platforms offering simpler, faster and more convenient services to stay on top in the “digital banking” era, according to a financial services expert.

He said that many banks in China as well as advanced countries are already making big strides in putting services “online” and “mobile” but Korean players are taking baby steps.

“Almost all functions of a bank can now be replaced by fintech and tomorrow’s bank model is already in the making,” said Choi Jung-kiu, head of Asia Pacific Financial Institutions Practices at AT Kearney in a recent interview

Fintech, or financial technology, describes a business based on software designed to offer more efficient financial services. It is center stage in the global financial industry’s major transformation into digitization.

“The way financial services are delivered and used is undergoing a major change in line with rapid technology progress,” Choi said. “In addition, non-traditional players, such as retailers and mobile carriers, can pose a threat to the industry.”

Choi, who previously worked for Standard Chartered Bank as the global head of strategy and head of retail banking in China, called for Korean lenders to build platforms from scratch.

A clear digital strategy in his view will be the key to Korean lenders’ fate. He pointed out that Korean players recognize the importance of digitizing banks, but lack a sense of urgency.

“Fintech is growing quickly and posing a serious challenge to the stronghold of banks,” he said. “Those who react to these new trends in a passive manner will not be able to win in the market.

“Banks that have historically been insulated from disruptive innovations due to strict regulations won’t be spared this time.”

Banks are not tech companies, but many global banks are trying to combine services with technology to stay competitive against startups equipped with innovations in digital payments and data security.

For example, the Development Bank of Singapore, regarded as a leader in digital banking, formed an alliance with IBM last year to beef up its digital strategy, while hiring the senior executive of MasterCard Labs as its chief innovation officer.

According to the veteran consultant, to improve existing businesses, Korean banks should first ensure end-to-end digitization.

“Financial firms should innovate approaches to customers leveraging fintech and broad ecosystem partnerships,” he said. “Customer value propositions should be simple, fast, convenient, transparent and membership-based.”

Second, Korean banks need to improve their interfacing with customers significantly.

Third, Choi believes that what may be helpful is to give frontline sales managers more digital solutions and sales support together with large data analytics.

“Banks’ existing incremental approach toward building a digital solution will not work anymore,” he said. “The key to value creation at speed and scale is a fundamental relook at the principles and business model of banking.”

The partner at the global consulting firm said that many international lenders are moving in this direction. China’s Yuebao was a good example. Yuebao, Alibaba’s online mutual fund selling only online, is now China’s largest money market mutual fund.

Choi said that it is important for leaders to establish a culture embracing “failures” because financial companies would need to go through multiple loops of trial and error to arrive at building successful business models with fintech.

“Financial companies should consider fintech as a part of their growth partners rather than pure competitors or pure investment targets,” he said.