SK, Samsung push into financial software market
SK C&C and Samsung SDS have unnerved midsize IT service operators here, as the conglomerates have begun to aggressively enter the domestic financial information service market amid the government’s deregulatory measures.
The SK Group’s IT service affiliate has already decided to submit its tender for Korea Post’s next-generation financial information system management worth 206.4 billion won ($172 million). Samsung SDS is also likely to submit its tender for the deal.
Korea Post began inviting tenders, Monday, and will select the preferred negotiator in mid-September. The contract will be finalized in October.
In 2006, Samsung SDS had been chosen as the postal service agency’s next-generation system operator. SK C&C also carried out several projects with it in the past.
Samsung SDS has remained cautious about the ongoing bid, saying it is reviewing the feasibility of the project at this moment.
But the company will likely seek to expand its presence in public projects further given that it was chosen in June as the preferred negotiator for Korea Development Bank’s (KDB) IT system management project valued at 287 billion won.
The Samsung affiliate resumed engaging in financial and public IT projects last year, five years after the top-tier IT service provider had decided to leave the market in 2014.
During its hiatus, mid-tier IT firms such as ITCEN expanded their presence in the local financial software market. ITCEN signed a 5.5 billion won contract with Korea Post in 2017 for maintenance of the national postal service’s financial system.
The government regulations that went into effect in 2013 to bar conglomerates from participating in public software projects have also helped the growth of medium-sized IT firms.
Since last year, however, the government changed its stance by allowing big companies to participate in public projects that are considered to use “new technologies.”
As a result, both SK C&C and Samsung SDS were able to participate in a bid to provide IT services to KDB which is pursuing speedy digitization amid the rising popularity of contactless transactions.
Industry officials expect the private sector will also clarify their preference for larger IT service providers given that the government-led projects have already excluded mid-tier companies.
In April, LG CNS was chosen as the company to direct integration between Shinhan Life Insurance and Orange Life Insurance in their IT services.
The envisioned bidding for a contract to provide IT services to Prudential Life Insurance Company of Korea that was sold recently to KB Financial Group will also likely be won by one of Samsung SDS, SK C&C and LG CNS. Prudential Life had signed a 25 billion won IT outsourcing deal with Samsung SDS in 2010.
Considering the domestic financial sector’s efforts for cost reduction and the financial regulator’s deregulatory measures, industry officials expect the big three IT service providers will continue to enjoy rising demand for IT outsourcing.
This has raised concerns among mid-tier IT service operators.
They have called for the government to again tighten its regulations to bar conglomerates from participating in public projects. The Korea IT Service Industry Association has urged the government to come up with measures to manage the coexistence of large, medium-sized and small IT firms.
Fortunately for midsize firms, there still exists a chance that they could win the Korea Post’s financial information system management deal.
One of the key variables is that the government cut its budget for the project from the initial estimation of 300 billion won, so as to finance its “Digital New Deal” drive.
If the conglomerates regard the downsized project as unprofitable, they may decide not to submit their tenders.
In the KDB deal, LG CNS unexpectedly dropped out of the project just before the deadline for the bid application. The LG affiliate, which is the smallest among the sector’s top three providers, said nothing has been decided yet regarding its possible participation in the Korea Post deal.