Commendation Award Banks' strategies towards development of fintech
By Lee In-hyung
The prima facie analysis of the rise of financial technology, or fintech, has altered the financial environment in the traditional banking industries by providing alternative strategies and business models in financial sectors.
Fintech has risen primarily in the sectors of payment/transfer and financial software, triggering more active collaboration.
With a well-established IT infrastructure and the immense influx of customers seeking technological innovations, the Korean market has unlimited potential in the development and use of fintech.
Statistically, transaction value is expected to grow over 1.04 billion won by 2020, with the compounded annual growth rate of 19.9 percent. Consequently, the new generation of payment/transfer transaction services, led by strong brands with a large customer base - such as Samsung Pay, Kakao Pay and Bank Wallet Kakao - has successfully emerged within the market.
Although the influence of fintech in Korea is still somewhat limited in certain banking sectors, the analytical approach in the current competitive environment requires banks to strategize responsive actions accordingly.
The emergence of this integration has formed an ambiguous borderline among different financial sectors, including banking, insurance, asset management and capital market, along with the advent of new business models such as internet-only banking.
Yet, the banks are still confronted with a continuously rapid-changing environment due to fintech’s impact, despite relevant efforts for digital transformation. The revolutionary concept of fintech has not only brought cooperative efforts in the banking industries, but correspondingly, has also stimulated intensified competition.
In response to this phenomenon, the banks may adopt two different preemptive measures, inside-out and outside-in strategies, in order to cope with the aforementioned unprecedented challenges.
With the inside-out approach, the transformation is internally driven by financial sectors, initiated from their core business areas.
With this, banks may primarily focus on providing improved traditional banking services with more convenience and access for customers. The courses of action formed by the inside-out strategy typically possess lower risks as its foundations are based on well-established businesses, ensuring the feasibility of new applications.
Nevertheless, the current dynamics of transformation and technological developments could be limited in traditional banking services. In essence, inside-out strategies may assist the banks in the changing environment, but lack fundamental strategic measures, especially in keeping the leadership position in both services and technological aspects against external disruptive attackers competing with the banking industries. Therefore, cultivating the respective banks’ competitive advantages and transfer operations under a single platform is crucial.
On the other hand, the outside-in strategy suggests alternative perspectives in dealing with the recent threats of the shifting market focus, from banks to fintech companies.
The outside-in strategy refers to reforming complete innovation of contemporary business models, concepts and products by cooperating with external forces that possess different outlooks and technological capabilities.
In actual implementation, crowdfunding is one of the best-known outputs of the outside-in strategy, which emerged in the market a few years back. The collaboration between banks and IT-related industries are based upon forming the resulting synergy effects.
In practice, banks may aim at the capitalization of market opportunities by adopting innovative capabilities to their existing businesses and ultimately shift to the new format. This strategy evolves a larger range of dynamics within traditional banking industries beyond the single extension of the existing market or value.
Yet, the outside-in strategy also involves significant risks with high market uncertainty and limitations from the regulatory party. In adopting the outside-in strategy, banks should focus on organizing collaborative structures with partners and decide the leadership position either on finance-led or technology-led approaches, to guarantee the feasibility of the collaborative efforts.
Decisions on the strategic approach are highly dependent on the capabilities of individual banks and the goal of their core businesses. Woori Bank, for instance, has been influential in adopting fintech to the Korean banking industries by effectively formulating and implementing both strategies on different banking sectors.
Likewise, in the promotion of the outside-in strategy, banks have launched their respective fintech incubators, such as Woori Bank’s WiBee Fintech Laboratory in order to introduce technological innovations from external factors.
However, banks have focused on innovation not only by developing open affiliation with outside players, but have also forged their own distinctive solutions with the implementation of inside-out strategies. As a result, Woori Bank has developed internally driven mobile fintech platforms, such as the development of WiBee Bank and WiBee Talk.
Hence, for the Korean market to promote prosperity within the traditional banking industries and match customer expectations, banks must accelerate further technological innovations. Most importantly, the Korean banks must further enhance their organizational ability to approach new technology as collaborative factors via a well-balanced structure and proactive measures as aforementioned.
Lee In-hyung, 24, is an international business management major at Osnabrueck University of Applied Science in Germany.