The key issue for banks this year is 'embedded finance.' Embedded finance means combining financial services with non-financial platforms. Banks have been expanding related organizations and personnel since last year.
According to the financial sector on the 22nd, the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) have been expanding their embedded finance organizations since last year. First, the most active institution is KB Kookmin Bank, which decided to split its Embedded Sales Division within the Corporate Customer Group into Sales Divisions 1 and 2 to enhance its sales capabilities. KB Kookmin Bank announced cooperation plans with Samsung Financial Networks' 'Monimo' last April and teased the launch of a Monimo-exclusive deposit and withdrawal account in April this year. A specialized product linked with Starbucks is also set to launch.
Shinhan Bank is strengthening related businesses through supply chain finance. Since November of last year, it implemented a non-face-to-face sales loan service to Hyundai Steel, which signed a supply chain finance agreement, providing electronic loan services to small and medium-sized enterprises that are entered into Hyundai Steel's online steel sales platform 'H-core Store.' Additionally, it provides the 'E-Pay Money by Shinhan Bank' service through the E-Land Group membership application.
Woori Bank merged its New Business Partnership Promotion Division and Innovative Technology Platform Division into a New Business Partnership Division at the end of last year. The partnership service launched allowing the opening and management of Woori Bank accounts in the name of minor children through the Toss app is a representative example of embedded finance services.
Hana Bank also partnered with Naver Pay and Coupang Pay last year. Naver Pay and Coupang Pay received special provisions for bank account opening through their designation as innovative financial services. Since 2023, Hana Bank has been expanding its customer base through collaborations with Carrot, Carrot Pay, Coupang, E-Diya Coffee, and Incheon International Airport Corporation.
At the beginning of this year, the chairpersons of financial holding companies emphasized embedded finance. Yang Jong-hee, Chairperson of KB Financial Group, noted in his New Year's speech, 'Companies in different industries, big tech, and platform firms are no longer our competitors but partners in creating new paths together,' and added, 'We must create a joint ecosystem that allows us to grow together by securing new customers from our partners through embedded finance.' Yim Jong-ryong, Chairperson of Woori Financial Group, also stated in an investment relations letter sent to major investors last month that he would continue to explore new businesses for future growth, including embedded finance partnerships.
Banks believe that activating embedded finance will impact the acquisition of non-interest income. Embedded finance does not have the burden of managing risk-weighted assets and there are no issues with improper sales. A diverse customer base can also become an attractive element for investors, positively impacting value enhancement.
Last year, the non-interest income of the four major financial organizations amounted to 10.939 trillion won, which is an increase of about 444.3 billion won (4.2%) compared to 10.4947 trillion won in 2023. Nonetheless, the reason banks are looking to expand non-interest income through embedded finance is that it provides new opportunities for banks, which have long faced criticism for their interest-driven business. As interest rate cuts continue, banks may see a decline in net interest margin (NIM) due to falling loan interest rates, which is why they are keen on embedded finance.
A financial sector official said, 'There are almost no areas where banks can generate significant revenue now,' adding, 'Since we need to earn revenue by sharing the fixed pie, it seems that embedded finance is seen as the only way out.'