News
Issue #2002 - 39 (October 2002)
(Updated Oct. 15, 2002)

MARKET OUTLOOK & TRENDS

Korean Banks Clashing With Wireless Carriers 

Korean commercial banks and mobile carriers are clashing with each other to secure an initiative in the fast-growing mobile financial service industry, particularly at a time when the convergence of telecommunications and financial databases is accelerating.

Kookmin Bank CEO Kim Jung-tae recently said in a speech that the prime competitors for banks will be telecom operators. Other top bank executives agree. The trouble is that mobile carriers are pushing ahead with a variety of wireless financial services swiftly.

Kookmin Bank finally set about forming a consortium with other banks to compete with SK Telecom's mobile financial service dubbed "NEMO." The move signals a direct confrontation between banks and mobile carriers.

SK Telecom, the country's largest mobile carrier, is at the forefront of the mobile financial solutions and services. SK Telecom introduced NEMO last year as part of efforts to diversify its business portfolio and expand its coverage into key financial services such as money transfer through the mobile network. 

SK Telecom's push for financial services comes as the wireless market is showing a slowdown in terms of user growth, and the company is keen to find a so-called future cash cow. 

SK Telecom recently took over a credit card unit and announced it would embrace financial services to solidify its income structure. SK Telecom virtually controls the country's mobile market and it has a huge database of mobile phone subscribers, which can be used for financial services marketing. 

SK Telecom currently has secured about 1 million NEMO users, and the service is linked with eight commercial banks. NEMO users are now allowed to log on to the Internet via their handsets and transfer money to certain accounts by simply typing in the telephone numbers of recipients. 

Bank sources said SK Telecom and KTF, the country's second largest mobile carrier, are wrongly stepping into the territory of commercial banks. An even larger concern is that the telecom firms' push for offering wireless financial services could undermine profitability of banks. 

Banks are also complaining that mobile operators are demanding unfair contracts by taking advantage of their control of the telecom network. "Telecom firms are controlling the country's infrastructure and they are using such public property to force unfair contracts with banks," a bank official said. 

Banks are especially sensitive about the possibility that SK Telecom's NEMO will diminish their profits. NEMO is currently offered free, but SK Telecom plans to charge a fee for the wireless transfer in addition to a financial service commission. 

But banks claim that SK Telecom's plan to collect a financial service fee is unfair. It should be banks that collect the service fee while SK Telecom charges telephone fees and certain commissions from banks, not from customers. 

Banks are also expressing displeasure about the way SK Telecom delivers the NEMO service. As the telecom carrier simply mediates the financial transactions for its own customers, banks have no channel to identify and secure the financial transaction records of those customers. 

"NEMO is SK Telecom's attempt to monopolize the financial transaction records of customers, which could make banks' CRM (customer relationship management) meaningless," a bank official said. 

The Bank of Korea (BOK) has finally kicked off research into the impact of mobile financial services such as NEMO. The move marks a major effort by the government to identify possible conflicts in the banking industry in connection with the new wireless value added services. 

Korea has more than 30 million mobile phone users, with three carriers - SK Telecom, KTF and LG Telecom - wielding great power by offering various services other than voice calls. 

Separately, these mobile carriers are clashing with credit card companies over wireless transactions and billing services, in the so-called "m-commerce" sector. Credit card companies have largely monopolized electronic billing and transactions services for offline purchases of consumer items, but their grip on the sector is now threatened by the aggressive moves by mobile carriers. 

SK Telecom is openly demonstrating its will to enter the credit card business to carve out a bigger share once the m-commerce market takes off. 

SK Telecom plans to launch its mobile credit card service in October by seeking partners in the credit card industry, and is demanding that credit card firms pay about a 1 percent fee for such m-commerce transactions. 

Moreover, major credit card firms are fully aware of the fact that SK Telecom has recently acquired the credit card unit of Jeonbuk Bank to enter the market directly. The take-over move suggests that SK Telecom is likely to emerge in the near future as a strong competitor for existing credit card firms, even though the government has yet to grant a license to the mobile carrier. 

SK Telecom remains adamant about getting the upper hand in the wireless commerce business. It said it will put an IC (integrated circuit) chip into mobile handsets from October so that it can send customer information to handsets for m-commerce transactions and instant payments. 

Credit card firms claimed that SK Telecom's IC chip method is problematic. SK Telecom's payment and transaction service offers only one credit card company information for each IC chip, a limit that could intensify competition among credit card operators. 

Mobile service providers are now expected to roll out payment and transaction equipment for their affiliated shops within this year, in a bid to kickstart the fledgling mobile payment market, but credit card firms are dragging their feet to buy some time and strengthen their market positions. 

Source : insight@koreaherald.co.kr - By Yang Sung-jin Staff reporter 

For more information: www.koreanherald.com

MobileInfo Comments and Advisory: Tussle between the financial companies and wireless service providers is bound to take place. We are watching from the sides. Our guess that there will be no knock-out punch and it will be a draw. The banks will take the macro payments and the providers will walk way with micropayments.

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