Wealth management emerging as growth driver for banks

By Choi Si-young

Advances in technology have generated a more sophisticated approach to examine the patterns of information, simple or complex. Understanding such “big data” or gigantic data sets has enriched daily lives from preventing diseases to combatting crimes. Financial sectors remain no exception. Banks now better understand their clients’ financial motives and interests through reviewing their consuming as well as saving habits.

Traditionally, Korean banks primarily profit from differing rates in lending and borrowing. However, banks and customers will enjoy more wealth with more aggressive practices, for from small to large, they altogether share the same interests in downsizing expenditures and multiplying savings. Administering wealth management for larger segments of people and establishing a new online “platform”, erected by banks, where “peers” or a group of “clients” conduct their financing will deliver a new source of revenue.

Initiated years ago in the name of “private banking”, banks have provided select high-net-worth individuals with “wealth management”. After scrutinizing the clients’ finance status and objectives, banks design “portfolios” or a detailed blueprint to more efficiently and effectively manage their assets from savings to taxes.

With expertise in operating private banking, banks can further target and encourage a broader spectrum of clients to receive wealth management. Big data analysis will guide banks to handle disseminated information about clients. With clients’ approval, banks can access their financial information scattered across a wide array of financial institutions and engineer preferred or best wealth management portfolios tailored to each client’s taste. An increasing number of customers concerned about their financial stability will welcome custom-tailored wealth management. The benefit of the new program will outweigh its cost if carefully coordinated with the assistance of big data mining specialists.

In addition to expanding wealth management to more customers, banks can revolutionize the traditional lending practice. Based on the business model of United States-based firm LendingClub, Korean banks can also attract potential investors and borrowers into a “platform” they build online. Only in Korea, the investors are the same “peers” or “customers” but who enjoy high levels of sizeable assets looking for returns on their lending. At more favorable interest rates, more customers will join the platform helping themselves, at the same time creating unwitnessed revenues in fees for banks. The amount of big data banks already possess will make the entire process less burdensome; the online platform transactions will produce almost no cost.

Banks will have to screen investing and borrowing customers for their financial records to identify the “eligibles” for entering the platform. While true that only the clients sharing the same bank accounts can join the online platform in the initial period since banks should background-check each participant to ensure safe transactions, the expected cooperation among banks seeking for heightened profitability will boost cross-bank platform transactions, enlarging the platform lending market.

Big data analysis has ushered in predictability in businesses. Once the realm of high-income individuals, more people can benefit from wealth management from their banks thanks to the new technique. Banks process overwhelming electronic data to identify needs of every client to best serve each client’s financial goals as they secure another income source.

The classic model of bank lending should also remodel itself to distributing lending power to other qualified investing customers eager to earn more. Created online at no or minimum cost, the platform where investing and borrowing customers meet to observe their transactions will pioneer a new medium of financing for both lenders and borrowers. It will also contribute to luring sleeping money in grey economy to the public.

Individual Information Protection Law and Electronic Financial Transaction Law need partial revisions to ensure more members of society benefit from new wealth management and peer-to-peer lending. The new changes will revitalize the banking industry and invite added prosperity for greater members of society to celebrate.

Choi Si-young is a master of law and Honorary Editor-in-Chief of Yonsei European Studies at Yonsei University.