Global strategies to reinvigorate banks

By Tuneer De

South Korea was one of the countries hardest hit during the 1997 Asian Financial Crisis, but Korean banks reacted very effectively in the years following this crisis. They complied with economic reforms diligently to create greater transparency in financial systems and reduce interest rates. Banks thus played a part in stabilizing the country, leading to an annual GDP growth rate of 10.7% in 1999, merely two years after the crisis started.

In recent years, many Korean banks have expanded to allied services through financial subsidiaries. The majority of their profits, however, still comes from traditional banking services such as personal loans and mortgages. In the face of a rapidly changing and globalizing market, Korean banks must reinvent themselves to maintain their competitive edge.

One way for banks to expand their horizons is to identify certain niche communities which are not receiving the kind of banking services they want. For example, banks could support SME’s in emerging industries by creating a conducive eco-system by providing specialized services for them. Another possible strategy might be to shift focus to securities-backed services and trading commissions as an additional source of revenue.

Woori Bank President and CEO Lee Kwang-goo tries out WiBee Mobile Pay, a mobile remittance service introduced in May after the bank launched the Internet-only WiBee Bank, the first of its kind in the domestic banking industry. / Courtesy of Woori Bank

However, with a number of government-run, nationwide, foreign and local banks, opportunity for domestic expansion in Korea is limited in the traditional sense. The importance of synergistic partnerships is increasingly being recognized, as the recent KEB-Hana Bank merger shows. These partnerships can also take advantage of Korea’s rich tech ecosystem in innovative ways, by partnering with the established conglomerates or chaebol to benefit from their economies of scale. In a heartening example of this, Woori Bank recently started accepting Samsung’s mobile payment service, S-Pay, in ATM’s across Korea.

According to a 2013 report in The Financial Times, foreign operations only accounted for 4.3% of total assets of Korean banks, and were dropping further. The time seems to be ripe for international diversification, which will bring with it unique challenges and also a plethora of benefits.

Successful expansion will require a deep understanding of cultures and languages, so it might be helpful to start with countries in the Asia-Pacific region, which share cultural traits similar to Korea. Countries such as Vietnam, Indonesia and the Philippines represent emerging markets where gaps in infrastructure can be filled by Korean banks. A good strategy might be to add a localized touch to the efficient and non-bureaucratic banking processes they are renowned for, such as by having websites in local languages. Even small steps like these might make people more open to the bank, and thus allow to gain a foothold in other countries.

One of the most efficient methods of understanding how to tackle the unique challenges that international diversification brings is by partnering with foreign talent. Depending on the potential involvement a bank sees in a region and the investments it is willing to make, partnerships could range anywhere from consulting to M&A’s. Foreign talent can help highlight holes in a country’s financial infrastructure. For example, micro-financing is an important but largely unregulated topic in countries like India and Bangladesh. Korean banks could team up with local organizations to create a proper structure and expedite the micro-financing process.

International diversification will also benefit Korean banks in terms of increased technological innovation and flexibility. While Korea is a very tech-savvy nation and home to leaders like Samsung and LG, the spill-over to the financial sector has been relatively small. For example, according to Woori Bank’s Wikipedia page, Internet Explorer is the only browser accepted in some of its foreign divisions, whereas global banks support multiple browsers. Such technological adaptability is very important for a bank which wants to be competitive in a variety of areas. Expanding to other countries will throw up problems which might need novel technological and organizational solutions, and if Korean banks tackle these problems well, innovation might well become another hallmark of the Korean banking system.

Korean banks have traditionally stuck to services that they know they are good at. By taking bold yet calculated steps, they can signal their capacity for risk and appeal to hitherto uninterested investors. In addition, by simplifying online interfaces, making services more consumer-centric and maintaining updated websites in both Korean and English, banks can signal their progressive attitude to many younger customers and thus entice them.

Korea is an economic powerhouse in Asia and its financial institutions are well-respected by neighbors for their strong work ethic, transparency and efficiency. In my opinion, with the right strategy and execution approach, Korean banks are well poised to clinch a position as leaders in the global banking industry.

Tuneer De is a sophomore at The University of Chicago in the U.S.