How will banks fare in mobile industry?
Banks are increasingly considering entering the mobile phone service market following the financial authorities’ recognition of Liiv M, KB Kookmin Bank’s mobile service, as a formal ancillary business for banks.
Woori Bank was the first to act. It announced a competitive tender process on Monday to select a telecommunications provider for the mobile phone business. The selected provider will be responsible for developing the bank’s service over the next 18 months.
As a mobile virtual network operator (MVNO) that rents network services from the top three telecom companies, the bank plans to secure a contract, complete business registration, and build the necessary IT infrastructure. Subsequently, it aims to offer various services that merge finance and telecommunications.
NH Nonghyup Bank has not yet formalized a specific timeline for its operations, but it is reportedly exploring the possibility of entering the market.
Under the country’s bank regulations, financial companies are not allowed to own non-financial subsidiaries. However, in 2019, KB’s service was recognized as an “innovative financial service,” allowing it an exemption from the usual regulations for several years.
Since then, it has successfully garnered more than 410,000 customers. On April 5, financial authorities recognized the service as a formal ancillary business for banks, allowing other banks to enter the market as MVNOs without additional approvals.
Banks seek to venture into the MVNO business as a way to reduce their reliance on interest earnings and to diversify their revenue streams. Furthermore, accessing telecommunications data provides advantages such as the development of credit evaluation models. The service also attracts younger demographics, particularly those in their 20s and 30s, who are the main users of affordable mobile data plans.
However, whether they can achieve success remains a key question.
Market watchers believe that it remains challenging for new MVNOs to carve out opportunities in the already saturated telecommunications market, especially with the upcoming launch of a fourth mobile network operator. In addition to the significant marketing expenditures, which delay profitability, there is growing pressure to collaborate with smaller MVNOs, which complicates efforts for aggressive business expansion.
Both Shinhan and Hana Bank, who had indirectly operated MVNO-related services, have already quit offering the service.
Facing continuous criticism for its aggressive, low-cost marketing — supported by strong capital — and its impact on smaller MVNOs, KB has also decided to abandon its previous pricing strategy ahead of its official business launch. The bank now intends to set its tariffs at over 90 percent of the cost price.
Other banks remain cautious.
“It is true that an MVNO business can give the banking industry a competitive edge if it successfully aligns with the existing financial service,” a banking official said. “As a late entrant to the market, there are many factors to consider before diving in without a strategy more distinctive than Liiv M.”