KB set to follow Citibank in cutting offline transactions

By Nam Hyun-woo

KB Kookmin Bank is considering collecting fees from clients who make transactions through tellers, in efforts to make more clients to stop offline transactions and improve non-interest profits.

Should the bank decide to do so, it will follow Citibank Korea’s experiment of introducing account maintenance fees, thus sending a signal that such a move is likely to spread across the banking industry here.

According to KB Kookmin Bank Tuesday, it is now weighing the benefits and impacts of imposing fees on clients who make transactions at brick-and-mortar branches.

“We have yet to make any decision on whether or not to introduce the new fees and other details like their coverage and exemption conditions,” a KB official said. “But we are carrying out necessary research.”

Recently, Citibank Korea announced a plan to collect account maintenance fees beginning in March. It will levy 3,000 won ($2.61) to 5,000 won on new clients opening their first accounts at the bank. It will exempt the fee for those who already have accounts or whose deposit balances surpass 10 million won. Also, clients who take advantage of banking services through mobile or internet platforms or ATMs will be free from the fees.

Though KB Kookmin’s scheme involves transactions via tellers, observers point out its purpose is similar to Citibank’s account maintenance fee: minimizing offline transactions. Those policies may be unusual for Korean clients who have long regarded them as free.

Banks operating in Korea have resisted charging monthly maintenance fees, unlike many other banks in the U.S. such as Citibank that charges $10 or Bank of America that charges $12.

Though there is a broad consensus that banks should collect fees from offline transactions to expand their non-interest profits and improve online channels, at the same time there is a concern that the fees will cause a stir among clients.

In 2001, Standard Chartered (SC) Bank Korea attempted to introduce the scheme here, but had to scrap it after three years. At that time the bank imposed fees on accounts whose monthly balances were below 100,000 won, but consumer groups heavily criticized the move, saying the lender only cared about its bottom line.

Citibank also had to take time before realizing its plan. Its fee policy came to light in last summer, but it won Financial Supervisory Service approval in December. According to industry sources, the process took time because Citibank had to spend time deciding on the exemption conditions in order to avoid the policy being labeled as a scheme to increase its fee revenues. Also, the financial authority’s thorough review was partially responsible for the delay.

“Given the revenue structures of global banks, introducing an account maintenance fee can be a way of improving revenues,” an official at a domestic bank said, asking not to be named. “However, Korean clients have long wondered ‘why do I have to pay when I place money in the bank?' Perhaps, making a hasty move will only cause more trouble.”