Regional banks becoming too dependent on online platforms
By Park Jae-hyuk
Concerns are rising over the growing reliance of BNK, JB and DGB financial groups on Naver Financial, Kakao Pay and Toss, which could eventually lead the regional banks to become overly dependent on the online platforms.
Critics point out the regional banks are paying large sums of commissions to the platform operators, which could end up costing their customers money.
"Their excessive commission payments will eventually be passed on to their consumers," Financial Economy Institute researcher Kang Da-yeon said.
Major commercial banks based in Seoul have also taken issue with the alliances formed between regional banks and fintech firms, saying the trend could weaken efforts by conventional banks to gain a competitive edge over platform operators in the financial industry.
The Seoul-based commercial banks refused in August to use refinancing platforms operated by Naver and Kakao, while the regional banks welcomed those platforms hoping to expand their reach across the country.
The commercial banks criticized the regional lenders for disrupting the ongoing efforts by conventional financial institutions to block big tech firms' growing influence over the banking industry. Amid the intensifying conflict, financial authorities decided recently to reconsider their plan allowing Naver and Kakao to operate refinancing platforms.
However, the regional banks have continued to strengthen their partnerships with tech firms, claiming that they have no other choice. A representative from one of the regional banks said that they are more vulnerable to competition with big tech firms than commercial banks which have ample capital reserves.
|BNK Kyongnam Bank Managing Director Kim Jin-han, left, and Seo Rae-ho, Naver Financial's financial business department head, pose at the bank's main branch in Changwon, South Gyeongsang Province, Oct. 8, after signing a memorandum of understanding for strategic cooperation in digitizal financial services. Courtesy of BNK Kyongnam Bank|
BNK Kyongnam Bank, for example, signed a memorandum of understanding with Naver Financial last Friday pledging strategic cooperation in digitizal financial services. The two companies agreed to work together on developing innovative technologies and promote their platform.
The South Gyeongsang Province-headquartered bank and its sister company, BNK Busan Bank, have already formed partnerships with other online platform operators ― Kakao Pay, Viva Republica and Finda ― to reach a wider range of financial customers.
JB Jeonbuk Bank also joined hands with Naver Financial in July to develop digitized financial services. The North Jeolla Province-based bank has maintained close relations with Kakao Enterprise for artificial intelligence technologies and with KakaoBank for fund management.
Another JB subsidiary, Kwangju Bank, has been working with Toss' mobile money transfer app operator Viva Republica, to cope with changes in digital finance. In July, CEO Song Jong-wook of the Gwangju-headquartered bank visited Viva Republica's head office in Seoul to see how the fintech firm's employees work.
DGB Daegu Bank has formed partnerships with Kakao Pay, Viva Republica, Payco and Finnq.
Although the Daegu-based bank's holding firm, DGB Financial Group, acquired the local fintech firm Newsy Stock recently to improve its own capability in digitization, it is still heavily dependent on larger tech firms. In August, DGB Chairman Kim Tae-oh met Kakao Pay CEO Ryu Young-joon to bolster ties.
Data given by the Financial Supervisory Service to Rep. Yun Chang-hyun of the main opposition People Power Party showed that Jeonbuk and Kwangju banks extended 18.5 percent and 15 percent of their loans through online platforms, enabling users to compare each lender's financial products, between January and July.
The proportion of Busan Bank's loans extended through such platforms has grown to 5.2 percent from 1.4 percent last year.
The regional banks are also presumed to have spent huge sums of money to advertise their financial products on those platforms.
Others say regional banks need to join hands with tech firms to stay competitive.
"Regional banks should prioritize their survival, rather than worrying about the possibility of becoming too dependent on tech firms," Korea Institute of Finance Senior Research Fellow Lee Byung-yoon said. "Cooperating with online platform operators is the best choice at this moment for regional banks to catch up with commercial banks in terms of digitization."