How far will banking groups advance into new industries as gov't deregulates?

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IT, metaverse, funeral, pet care among list of possible new business opportunities

By Yi Whan-woo

Banking firms will soon be unrestrained as they search for their next growth engines ― in non-financial sectors ― under the government's latest deregulation plan, prompting speculation over possible new businesses that they may be interested in.

Announced by the Financial Services Commission (FSC) on July 19, the plan is aimed at easing a rule that restricts banks and industrial firms from stepping into each other's industries, as a part of efforts to curb unfair business practices by conglomerates.

Under the rule, industrial businesses can own up to a 4 percent stake in a bank, and the latter can own up to a 15 percent stake in a non-financial firm.

The FSC finds the rule outdated, especially during the "big blur" era, when barriers among businesses are becoming vague due to the rapidly-evolving nature of digital technology.

Under the newly released proposals, banks are looking at IT businesses as a way to compete against big tech firms that have been capitalizing on their digital prowess to expand their presence in the banking sector.

KB Financial Group, the parent company of the nation's leading lender KB Kookmin Bank, gradually yet persistently has nurtured startups in robotics, the metaverse and other sectors that are considered necessary to rev up the digital banking environment.

The parent firm of Shinhan Bank, Shinhan Financial Group has invested in artificial intelligence (AI), prop tech and blockchain.

Prop Tech is a technology tool used for real estate so as to optimize the way people buy, sell, research, market and manage a property.

Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.

NongHyup Financial Group had its lending arm NH NongHyup Bank form a partnership with fintech company Finger to open a metaverse platform called, Dokdo-Verse.

The platform is noted for using non-fungible tokens (NFT), a cryptographic asset on a blockchain with unique identification codes and metadata that distinguishes it from one and another.

Two other banking groups, Hana and Woori, are in consultation with relevant firms to tap into the fintech business.

"The banks will aggressively advance into IT business once the rule on separation of financial and industrial companies is eased," a commercial bank official said on condition of anonymity, noting that the lenders could not cope with tech firms amid a shift toward digital banking.

Financial Services Commission (FSC) Chairman Kim Joo-hyun, second from left, speaks during a meeting with economic and financial experts at Government Complex Seoul in downtown Seoul, Monday. The FSC seeks to ease restrictions to allow banks to advance to the non-financial sector. Yonhap

The banks are also interested in virtual assets, such as cryptocurrencies, due to the growing demand from the banking sector.

The lenders are anticipated to capitalize on massive customer data as big tech firms did in order to nurture delivery and other services that can be offered through a platform.

For instance, Shinhan Bank has developed an on-demand food delivery app that offers financial benefits to its self-employed clients in the restaurant business.

It said it advanced into the on-demand food delivery service business after concluding that it has an edge over the bigger competitors in terms of lower commissions and other financial benefits.

In the long term, the bank seeks to use the app as a source of big data for the creation of relevant financial products.

Woori Bank launched a courier service in partnership with convenience store chain 7-Eleven.

Hana Bank came up with a service that allows its app users who are interested in getting a new car to compare car prices in the market.

KB Kookmin Bank partnered with Yogiyo, a food delivery platform, to enable its clients to order food using the bank's app.

NH Nonghyup Bank sells flowers on its app, in cooperation with the Flower Farmers Association, one of its clients.

The FSC's deregulation plan is drawing the attention of other financial services companies such as insurers and credit card companies that offer customized services for customers using compiled data.

Among services on the list are funeral, pet care and auto financing.

"The credit companies are especially believed to have competitiveness against the non-financial sector because they have data that can help them analyze customers' shopping behavior," a credit card company official said.

Meanwhile, some analysts speculate that deregulation may result in unfair competition between banks and their smaller competitors.

"Some industries are dominated by small and medium-sized enterprises (SMEs) that do not have sufficient capital to compete with lenders," said Hanyang University economics professor Ha Joon-kyung. "In that case, the banks will have an advantage in the uneven playing field which they have been heavily opposed to."

The professor referred to the lenders calling for competition on an equal footing against big tech firms in the platform business.

Jung Sung-in, a Hongik University economics professor, noted that the deregulation plan can be risky considering the banks' assets include customers' assets.

"Any possible risks from non-financial businesses owned by a lender in the future can spread to its banking business, meaning such risks can jeopardize customers' money," Jung said. "In that regard, the government should be cautious in deciding to what extent the banks should be allowed to invest in the non-financial sector."

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