Runner-up Award Banks well-suited to lead changing financial environment

By Lee Joo-young

The first Korean currency was issued more than a thousand years ago. Back then, not much money was in circulation because nobody had faith in the value of currency. People could trade goods instead, so there was no urge to start using cash.

However, money has now become an essential part of our everyday lives. It has gained the trust of people to the extent that not many feel the need to possess actual bills and coins in their wallets.

Starting in September next year, banks will even stop issuing paper bankbooks. This shows that money of today is meaningful simply as numbers in our bank accounts that we check on computers or smartphones. Now, the financial environment is about to undergo yet another change as internet-only banking enters the picture.

The prolonged period of low interest rates has taken a toll on many local banks, leading them to reduce the number of offline branches and ATMs. In the first half of this year, 127 branches of 5 major banks closed down and 100 more are expected to follow suit in the second half.

Accordingly, banks are looking for ways to change their business methods. Considering the advance in technology and the surging popularity of internet and mobile banking services, internet-only banking might be the answer they are seeking.

This isn’t the first time there has been moves to introduce internet-only banking into the Korean society. It failed to take off in the years past because of legal restrictions and social perception, so it is too early to tell whether the new form of banking will make its way into our daily lives this time around.

However, just as Kakao Talk suddenly invaded our lives by replacing traditional SMS, innovative services have their way of quickly winning over people’s minds. Banks should actively assess where they currently stand and consider the following factors to successfully apply innovative services to their own systems.

The most important aspect of Internet-only banking is security. More services will be available via Internet and that would mean more reason for criminals to hack into a bank’s system. The security should be airtight to convince the users that there is no risk.

However, that doesn’t mean people are willing to put up with endless security procedures. We hear complaints about the current payment system quite often. The use of accredited certificates definitely has its pros, but it also comes with many restrictions, like the type of browser you need to use.

Banks should consider implementing new technology like the iris recognition system so that the identification process becomes simpler and hard to breach at the same time. To gain positive response from the public, security and convenience should both be addressed.

Additionally, banks should make the most of their current situation by continuing to accommodate a wide demographic group. We are living in an aging society and not everyone can handle technology with ease. For computer illiterates, getting accustomed to a new form of banking would be too much of a hassle.

In that sense, traditional banks have a firm grip on this group of people, but banks shouldn’t take them for granted. By providing personal services that are exclusive to offline account holders, they need to guarantee there is merit in visiting the offline branches in person.

Banks should also provide complete one-stop banking services. It would be convenient for the clients, but more importantly, banks would be in a position to accumulate huge amounts of user data that would facilitate better understanding of their clients.

Like how Netflix uses big data algorithm to recommend shows that suit users’ tastes, banks could utilize the data collected through all the transactions that people make to provide personal financial management services to each client without having to assign one banker per client.

This might bring up privacy issues, but with the clients’ consent, banks would be free to propose investment opportunities based on their attitude to risk or to give them discount benefits by analyzing their spending patterns. Knowing exactly who their clients are, it would be easier for banks to maintain a long term relationship with them.

Some say that the public has lost trust in the traditional financial institutions due to major financial crises like the one in 2008. Even so, no one keeps all their money hidden out in their backyards. In one way or the other, people rely on banks to manage their money.

This is the reason why banks are in the best position to lead a new paradigm of banking. They will face fierce competition from internet-based fintech startups, but banks have a head start with a strong client base. The question is whether they can continue to lead the banking industry for the years to come. Only time will tell.

Lee Joo-young, 23, is an English literature major at Sung Kyun Kwan University in Seoul.