South Korea Sets Trends in Global Mobile Banking

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1 South Korea Sets Trends in Global Mobile Banking By Kim Tae-gyu The mobile phone is increasingly being recognized by banks in Asia as a costeffective channel to deliver banking and trading services. In Asia's technologically more advanced countries like Korea, Singapore, Hong Kong and Japan, mobile phone market penetration is above 40 percent and accessing customers through this unique and highly personal communication tool is proving highly successful. According to the Bank of Korea, the subscriber base of Koreans using mobile banking services has tripled in the past 15 months, having now reached almost one million. Millions of mobile phone transactions are carried out every day throughout Asia, opening huge direct marketing opportunities for banks. Moreover, it can be expected that e-commerce, both B2B and B2C, will grow exponentially as mobile banking takes over in Asian nations. Soon, more users will be accessing the Internet from cell phones and PDAs than from PCs. Mobile Internet services should therefore definitely be on the agenda of all financial institutions. Mobile banking services will inevitably expand into the untapped Asian markets, including China, where currently almost 30 million people own cell phones, but where mobile banking has yet to gain broad consumer acceptance. The widespread presence of Web-surfing cell phones is a must to implement fullscale mobile banking and only a few Asian countries meet the prerequisite at present. Consequently, in the short term, mobile banking is unlikely to gain a sweeping presence throughout Asia, but the offering and utilizing of financial services through mobile gadgets is an unstoppable global convergence trend and Asia as a whole will be riding the crest of the wave. Mobile Banking in Korea Mobile banking is continuing to gain popularity in Korea and the rest of Asia, in line with the exploding digital convergence trend. For example, the number of clients using mobile banking in Korea, based on either integrated-circuit (IC) chips or portable Internet, amounted to just 1.1 million in December, However, the figure more than tripled in 15 months as a total of 3.3 million transactions were reported to the Bank of Korea in March of this year. Subscriber base also expanded significantly especially for this year, as the number

2 mushroomed from 300,000 at the end of last year to almost 1 million last month. ``Emulating the enormous success of similar services on the Web, mobile banking is proving to be a home run this year with full-fledged implementation,'' Tongyang Investment Bank analyst Lee Tae-jin said. ``The service will gain further momentum in the future.'' Mobile banking is a fusion of mobile technology and financial services, which has emerged after the advent of portable Internet and smart-chip-embedded handsets. The services enable subscribers to access their bank accounts and transfer funds anytime and anywhere via their handheld communication devices. Despite having been launched only last September, mobile banking has already became a widespread service as typically trend-sensitive and tech-savvy Koreans resort to the offerings on a regular basis. ``Which is a more convenient way to carry out account transactions? _ to push the keys on your cell phone or to visit the bank branches in person. The answer is selfevident,'' Lee claimed. He said the service will expand into the untapped Asian markets including China, where currently almost 30 million people own cell phones, although there remain some problems to settle en route to the genuine globalization of mobile banking, including security loopholes and technology standardization. Definition and Development of Mobile Banking In fact, financial services through cell phones have been possible since the wireless Internet came into existence, expanding the online banking concept to the mobile environment. Some also calls the wireless application protocol (WAP)-based features as mobile banking and in that sense many nations in Asia and the world are already deploying mobile banking. However, the genuine and full-blown mobile banking based on smart IC chips is currently being utilized only in Korea and some other mobile juggernauts. The nation's smallest operator stirred things up last September by kick-starting the real mobile banking by forming a partnership with Kookmin Bank, Korea's biggest lender. The new chip-based offerings, named ``Bank ON'' were a big hit as a total of 280,000 people signed up for the new services during the first four months after its inception. Bigger rivals of SK Telecom and KTF jumped onto the bandwagon to draw new customers or to lock old ones in, starting their own services from March of this year.

3 Currently, business leader SK Telecom is teaming up with eight local banks _ Woori, Shinhan, Chohung, Hana, Kyongnam, Kwangju, Jeonbuk and Jeju _ and retains 200,000 mobile banking customers under the title of ``M-Bank.'' The second-largest operator, KTF, has attracted 70,000 subscribers under the flag of ``K-Bank'', which includes alliances with Kookmin, KorAm and Pusan banks. However, LG Telecom is still savoring the first-comer advantage with its Bank On clients topping 700,000 as of last month. The underdog operator has teamed up with Korea Exchange, Korea First, Kookmin banks and Industrial Bank of Korea. The sky seems to be the limit for the carriers' banking aspiration as they set their sights on further expanding their tie-ups in order to survive the stiff competition in Korea's mobile landscape. Asian Prospects of Mobile Financial Services From the perspective of Korea, where more than 70 percent of its 48 million population carries one or more mobile handsets, the wireless infrastructure of most other Asian nations is still n its infancy. ``At the moment, only Singapore and Japan have the luxury of enabling mobile banking with their state-of-the-art wireless network architecture in Asia. For others, such financial services via handsets are not imminent,'' said Kim, analyst from Mirae Asset. The widespread presence of Web-surfing cell phones is a must to implement fullscale mobile banking and only a few Asian countries meet the prerequisite at present. Singapore has evolved into a powerhouse of wireless financing thanks to its Call for Collaboration (CFC) programs, masterminded by the Infocomm Development Authority of Singapore (IDA). The city state, where almost 80 percent of its 4.2 million population owns cell phones, currently deploys a mobile payment system based on the European standard of the global system for mobile communication (GSM) Meanwhile, Korea's mobile network is being operated by the code division multiple access (CDMA) technology, a competitor to the GSM. In Japan, another mobile powerhouse of Asia, WAP-based mobile banking is seen everywhere, but as far as the chip-based offerings, the nation has yet to land fullblown services. In other Asian nations, even WAP-based mobile banking is at its canvassing stage. More accurately, the countries are now busy in converting the focus of telecommunications from landline to wireless. In the near term, mobile banking is not likely gain a sweeping clout in such nations,

4 but the financial services through mobile gadgets are a kind of global convergence trend and Asia as a whole will be going on the ride, according to Mirae Asset's Kim. Banking on Mobile Banking Although mobile banking clearly has a bright future, there remain some barriers like security worries and disputes on a standard, unified chip, on the way to the entrenchment of the services. Usability, interoperability and security are major considerations in mobile banking. To secure interoperability and enhanced usability, versatile chips are a must, which can interconnect several banks and carriers at a time. Currently, one chip can accommodate mobile banking service for just one bank, which means customers are required to exchange chips specific to a certain bank every time they make a transaction. In an effort to rectify this problem, mobile carriers led by SK Telecom are seeking to invent new types of chips that will include several credit cards and debit cards in a single smart chip. The operators' commitment to the smart chip, however, aroused the ire of some banks, which raised concerns regarding the security of the new solution. ``Banks seem to worry mobile carriers will take an upper hand if they hold master keys to the smart chips, which include all banks. Behind the scene both sides are throwing their weight to take the initiative,'' Merits Securities analyst Jeon Sang-yong said. Security algorithm disputes and storage space shortage are other headaches to overcome en route to firmly establishing mobile banking. Top carrier SK Telecom goes with the SEED standard in tune with the decision of the Korea Telecommunications and Clearings Institute. In comparison, Kookmin Bank began with triple-des (data encryption standard) last September because SEED was not available at that time. Adding to the difficulties, currently even the top-of-the-line chip can only store two credit or debit cards at a time with its 16 kilobyte space as one card need at least 6 kilobytes. Carriers are saying they will roll out 32 kilobyte-chip-embedded handsets soon, but still must enlarge the storage space by several notches to accommodate smart cards. As players of the leading mobile banking nation, the two sides must uncover a winwin solution, putting the benefit of customers first. We should set the trend of the world as far as mobile banking is concerned, Jeon concluded.

5 Source: 05/16/2004