[Editor’s note]
With over 90% of bank transactions carried out on a non-face-to-face basis, even global banks are shutting down physical branches, refocusing on the provision of advisory services.
CEO Kwon Seon-joo of the state-run Industrial Bank of Korea (IBK) has recently underscored the reinforcement of non-face-to-face channels, creation of new opportunities through convergence with subsidiaries, entry into Southeast Asian markets and provision of SME support.
This report covers Korea University Professor Kim Hyoung-joong’s talk with Kwak Young-ki, general manager of the Fintech Business Department at IBK. Professor Kim also serves as chairman of the Korean Society of Fintech.
“IBK has begun using facial expression recognition on a trial basis in a bid to introduce iris scanning technology.”
Kim: It’s time to contemplate key infrastructures needed for the development of the fintech industry.
Kwak:
Fintech has opened the floodgates to new business models based on creativity and innovation. Financial authorities are also stepping up their support for robo-advisors, big data, fintech firms’ global expansion and the creation of an ecosystem for crowdfunding.
In particular, the Financial Services Commission (FSC) has launched the world’s first joint fintech open platform, based on open application programming interfaces (API), in collaboration with 16 commercial banks and 25 securities companies.
Kim:
These days, data leaks, data input errors and hacking are posing a greater threat to banks than anything else. Then, I expect that there will be high demand for workers with advanced mathematical abilities or electronic data processing skills in the future.
Kwak:
Advances in information technology (IT) have fueled the fintech craze in the financial market. The fintech craze is so intense that the fintech tail seems to be wagging the financial dog. Fintech is not something that has come out of the blue. I think the sophistication of the banking industry has simply brought underlying information technologies to the fore, naming them fintech.
I believe that IT experts will play an equal or superior role in the financial world in the future. As you mentioned, experts in statistics or math could be in high demand. However, there are still financial incumbents’ métiers that fintechers cannot make a play for. Thus, financial incumbents are unlikely to die out. IT and banking will coexist in their respective areas in the future.
Kim:
Japan’s three major banks are increasingly letting their employees to work from home. In fact, banks are going through big physical changes. What has changed since the introduction of eye-scanning ATMs.
Kwak:
We introduced iris recognition systems to the sales department and the data processing center on a pilot basis. Iris recognition technology found favor with more than 75% of our employees. However, there is a caveat. While the password-based security system allows us to change our password anytime, the biometric data cannot be altered once they have been exposed.
When biometric data is stolen, we have to face considerable risks. That’s why the importance of safely storing biometrics is growing. The task of separately storing standardized biometric data through the Korea Financial Telecommunications and Clearings Institute (KFTC) will be finalized sometime in October.
As the Samsung Galaxy Note7 features iris recognition technology, iris scanners are likely to go mainstream.
Kim:
Biometric identification technologies are not 100% accurate. In terms of iris recognition, errors could occur under different lighting conditions. Isn’t this true
Kwak:
As a matter of fact, different lighting conditions could cause minor problems. However, I think that Samsung and LG’s technologies are advanced enough to address such problems.
Our test results have shown that the accuracy of iris recognition technology is pretty high. Iris recognition could be impeded slightly by surrounding light, eyeglasses or contact lenses, but iris recognition technology is making fast progress to enhance its accuracy.
Iris scanners scan our eyes more than 20 times a second, so the margin of error is very small. . Besides, iris scanners, developed by conglomerates, can tell the difference between the human iris and a fake iris. In the financial sector, Woori Bank and IBK have taken the lead in adopting iris recognition technology.
Kim: It there any regulation on adopting biometric identification systems
Kwak:
Financial authorities are easing regulations even on non-face-to-face identification methods. As a result, we didn’t feel the need to develop new technologies. While whizzy new technologies were emerging outside the banking industry, banks stayed the same, consequently finding themselves far behind the times and less competitive. As financial authorities lifted security regulations, we could take the plunge into iris recognition technology. Biometric authentication is not 100% accurate, but there is no doubt that it can serve as an effective security tool.
Introducing biometric technology costs a little bit of money. For consumers, the cost is negligible.
Kim: What sets IBK’s i-ONE Bank apart from other banks’ fintech services
Kwak: Other banks are taking a two-track approach towards fintech. They are running existing smart banking tools and have built a new platform as an add-on to their existing frames. Cases in point are Woori Bank's “WiBee Bank,” Shinhan Bank's "Sunny Bank” and Kookmin Bank’s “Liiv.” These new platforms have yet to offer data that can attract customers and increase user traffic.
One the other hand, IBK’s i-ONE Bank comes in the form of a full-service banking platform whereby all the transactions can be processed. It is still unclear which strategy is better. For now, IBK’s i-ONE Bank is a comprehensive platform that encompasses technology, fun, convenience, customer preferences and financial technology. IBK’s i-ONE Bank also offers hassle-free money transfers and business card-based loan offerings without collateral.
Kim: Some predict that the emergence of online-only banks will wage a price war against high-street banks.
Kwak: If our competitors are achieving high efficiency with low costs, we have to respond accordingly. For example, several banks can make joint ATMs to cut costs. ATMs are power guzzlers. By applying queueing theory, we can make adjustments to the installation of ATMs. The fintech department can predict queue lengths and waiting times and do a cost-benefit analysis so as to slim down and eventually raise customer satisfaction.
Kim: Fintech companies have received support mainly for their development of authentication and simple payment systems. The release of robo-advisors has recently been bandied around. As of now, fintech is heavily utilized in red oceans.
Kwak: Online-only banks will fight their second battle in the areas of simple money transfers, loans and then asset management. We’ve divided our fintech business into several sections and each section is making different responses.
The areas of payment systems and money transfers have already become red oceans. As for P2P lending and crowdfunding, we’re complying with government policy to have a headstart over our rivals. On January 25, we opened a website dedicated to information on corporate investment (www.ciip.or.kr). This website will play a bridging role between companies picked up from crowdfunding sites and individual investors.
The FSC is making an effort to help crowdfunding put down roots in Korean soil at an earlier date. And we are leading the effort. We hope banks will make more tangible results in their push for fintech. And IBK looks to continue to serve as a fintech leader this year just like we did last year.
