The entry of highly competitive tech firms in the local financial sector may be an opportunity, rather than a threat, for conventional financial institutions, according to a state-run think tank chief.

“The entry of these IT firms will eventually push banks to establish their own digital businesses, which will consequentially create new sources of income,” Yun Chang-hyun, president of the Korea Institute of Finance told The Korea Herald in an interview.

His remarks came amid rising concerns within the banking sector over the up and coming competition from global IT companies. They have expanded into financial services by capitalizing on their information technology infrastructure that includes extensive databases.

Google and eBay, as well as China’s top e-commerce group Alibaba, for instance, have already made inroads into the mobile payment market.

South Korea’s most used mobile messenger provider Kakao is also expected to launch its financial transaction service ― Bank Wallet Kakao ― in the second half of this year. 

“With the rise of digital banking, banks will grow out of simple functions and focus more on high value-added work such as strategic asset management for the rich,” Yun said.

South Korea currently has around 1,400 so-called “super rich” people, whose assets amount to 30 billion won ($29 million) or more, meaning there are many potential customers.

But the financial industry here still has a long way to go in going global, according to Yun.

“In contrast to the nation’s leading tech companies such as Samsung Electronics and Hyundai Motor, few financial companies have made it to the global level,” he said.

According to the Transnationality Index, or TNI, which shows the ratio of a company’s foreign assets, sales and employment, South Korea’s financial industry has a TNI of only 4 percent. The corresponding figure for the Netherlands was 50 percent and Japan has 10 percent.

What is most needed is regulatory support from the government, according to the KIF president.

“Companies doing business overseas should be allowed more flexibility than those operating at home,” he said.

Banks, too, should make efforts and establish long-term strategies in order to penetrate the global market, he added.

As an example, Yun referred to Shinhan Bank, which set to rooting out rebates when it expanded its business in Kazakhstan five years ago.

“Banks taking rebates from companies was considered a local custom, rather than something illegal, but Shinhan decided that it needed to address the issue in order to achieve long-term gains,” Yun said. “Its efforts have paid off and the bank is now highly reputed in the Central Asian country.”

He also called for the current loan approval process to become more diversified in order to lower the financial threshold for small companies with innovative technology.

“(The banks’ passive stance on loan approval) is not entirely their fault as it is the loan approval system itself that is outdated,” he said.

Last month, President Park Geun-hye rebuked the financial sector for being too “self-protective” and thus for failing to provide the necessary financial support for start-ups and the socially disadvantaged.

“If technology assessment or other movable assets are acknowledged as valid securities, capable start-ups will have wider access to bank loans,” Yun said.

By Shin Ji-hye (shinjh@heraldcorp.com)