Making digital banking a profit centre

• Shinhan Bank launched Sunny Bank in 2016 to digitalise the bank's retail banking assets
• Sunny Bank used big data analytics to assess the credit worthiness of its customers
• Shinhan Bank intends to turn Sunny Bank into a global mobile platform to serve customers in 19 overseas countries where it operates

The retail banking sector in Korea is on the cusp of momentous change. It is one of a growing number of markets in Asia Pacific that has opened its doors to new-age digital banks, joining the likes of Australia, China, Japan, India and even Vietnam that had done the same. In late 2015, industry regulator, the Financial Services Commission (FSC), had given in-principle approval to two digital-only banks to operate. This will introduce greater competition and innovation that will bring deep transformation. The two banks, K-Bank and Kakao Bank, are expected to start business in the first quarter of this year.

However, this incumbent bank has not stood idle in anticipation of the new entrants, it has been busy creating and introducing innovations of its own. Shinhan Bank, arguably among the most innovative and profitable banks in Korea if not the region, is the first to act.

It launched mobile-based digital banking platform Sunny Bank in December 2016. This followed regulatory changes by FSC, allowing bank customers to verify their identities online. Users can open accounts in the new platform through mobile identity authentication, negating the need for face-to-face interaction with a bank teller. In addition, the platform allows customers to obtain foreign exchange, credit card, loan and remittances products and services.

One product that has demonstrated the early success and viability of Sunny Bank as an online acquisition channel and profit centre is its MyCar Loan.

An Hyo Ryul, general manager of retail business development, shared that the revenue generated from the new automobile loan product has increased rapidly, with outstanding loan amount reaching about $1 billion (KRW1.15 trillion) at the end of 2016.

“We aim to increase it five times in 2017. More importantly, it is about improving the process for the customers, the bank, and our employees. And it allows us to recognise digital banking as a valid profit centre,” he elaborated.

The bank is currently focused on marketing the product through 20,000 car dealers nationwide, but expects to work with domestic car manufacturers to market directly to buyers soon.

On the potential of Sunny Bank to shift transaction between online and offshore channels more seamlessly, An commented: “At Shinhan Bank, when we see increase in usage of 300% or more for two consecutive years, we consider it to be a success. And we believe that we are off to a good start because we have achieved more than 300% increase from last year, despite the low base. And if we expand our product line to mortgage and other consumer credit facility, as well as personal loans, we believe 80% of our retail loan portfolio can be digitalised.”

Furthermore, the bank is able to assess customers’ credit worthiness from non-traditional data sources by employing “big data” analytics, allowing it to extend its credit facilities to underserved customer segments such as housewives and non-full time (freelance) workers.

The platform also offers other services such as foreign currency exchange and overseas remittances. To mitigate the effect of volatile foreign exchange rates, the bank introduced what it described as “mobile safe” and “reservation” services. These services allow customers to “reserve” or pre-set the rate at which they want to make the currency exchange and the conversion will be made automatically when the rate hit the level. The proceeds can be kept in the “safe” until they want to use it. 

In addition, the bank reduced its foreign exchange transaction fees by 90%. Given the competitiveness of the offering, it reportedly generated 420,000 transactions worth $245.75 million (KRW282.8 billion) within the first three months of its launch. To create a more seamless customer experience, the bank has also launched compatible Sunny Bank services for “wearable” devices, enabling users to perform cardless automated teller machines (ATMs) and payments transactions using their smart watches.

Shinhan Bank intends to turn the Sunny Bank platform into a global mobile platform to serve the 19 overseas countries that it operates in. The first is Vietnam, where it launched a version of the platform called “Sunny Club”, which focuses on non-financial lifestyle and leisure contents that it hopes it can leverage off to expand its credit card and consumer credit businesses. An stressed the importance of Shinhan Bank keeping ahead of its domestic peers in preparing for digital transformation.

“The key is on developing very competitive products and services. We can make use of our experience to work with IT and fintech firms to lead the innovation and maintain our competitiveness in the market,” he concluded.