The traditional industries are making a foray into the financial market by banding together with IT companies as the Lotte Group, Korea's No. 1 retailer, and Kakao Bank, a leader in innovation in the information technology (IT) industry, signed an MOU to integrate their distribution and financial business. They began to forge partnership with IT firms as they believe that payment big data will determine industrial competitiveness.
According to the industries including the IT industry on June 27, Lotte and Kakao Bank recently signed an MOU on jointly developing an account-based payment model. Payment has belonged to the financial industry so far, but IT-based manufacturing and distribution companies are invading the payment market. In addition to developing new financial products using the financial data of Kakao Bank and Lotte’s 37 million members and 25,000 L.Pay merchants, they agreed to develop an account-based payment model for “app-to-app” payment through this MOU. App-to-app payment connects customers and sellers directly through mobile applications without using VAN companies used by credit card companies. This means that consumers will not need a credit card to make a payment.
"The alliance between Lotte and Kakao Bank is meaningful in that finance and distribution are combined into a package," said Jung Yoo-shin, a professor of business administration at Sogang University. "In the end, offline and online and social network service (SNS) will unite and bring innovation with new goods and services."
Samsung Electronics and LG Electronics which are leading manufacturers in Korea also began to their own payment service networks by loading their own smartphones with Samsung Pay and LG Pay. "The competitiveness of the manufacturing industry depends on how much customer payment information companies will secure in the future," a bank official said. "America's Amazon is valued more than Google because the former has payment and billing information of consumers around the world.
KT, a leading IT company in Korea, has already entered the Internet banking business. Compared to companies in developed countries, the Korean IT giant threw its hat in the ring to make a bold foray into the banking sector.
SK Telecom also set up a joint venture, Finnq with the Hana Financial Group last October. It is said that Finning will launch a new financial service where an AI-based chatbot exchanges text messages with customers, enabling customers to use financial services as early as next month. The Shinsegae Group is actively courting customers through SSG Pay, a mobile payment service, through active alliance with various financial institutions.
A lot of attention is being paid to Mirae Asset Daewoo and Naver which agreed to engage in the digital financial business by exchanging 500 billion won in each other’s equities. "Google is the biggest competitor of the financial industry," said Park Hyun-joo, chairman of the Mirae Asset Financial Group. He pointed out that boundaries among the IT, manufacturing and distribution industries and the financial industry were completely torn down.
Korean manufacturing, IT, and retailers are tapping into the payment service market, which is a financial area. Analysis says that this fact hints at the fact that they felt a sense of crisis about big multinational players such as Amazon and Google are expanding into the fields of finance, IT, and distribution, breaking down barriers among the sectors. In particular, Korean manufacturing, distribution, and IT companies are putting forth their efforts to compete for more payment information since payment big data, a financial area, can determine the competitiveness of current traditional industries.
However, there is a concern that this kind of a flow in the Korean economy will hit a snag of “the separation of the banking business and the industry,” failing to destroy business areas and even impeding efforts to integrate industries. The Korean government prevents from industrial capital from holding more than 10% of a bank's stake and more than 4% of voting rights at a bank.
In fact, Samsung, LG, and Hyundai have been denied participation in the banking industry, which makes it impossible for them to innovate like Google or Amazon in advanced countries such as the US. It is also pointed out that Korea is at a toddler stage compared to advanced nations, as large corporations are barred from trying some tests like internet banking or fintech as the government has been concerned about a possibility that if large corporations own banks, the banks will be used as private coffers of the large corporations and has been sticking to the separation of the banking business and the industry for more than 20 years.
For this reason, a bill to allow IT companies to own up to 50% of equities in an internet bank by applying a special law is pending in the National Assembly but no progress has been made even in the 20th National Assembly.