The key of fintech - financial technology - is to make convenient money transaction and payment convenient with information technology, to raise the prediction accuracy through big data, and to maximize profits and minimize risk through accurate protocol and optimized algorithm.
Today, Internet allows non-face-to-face technologies. Credit card users can transfer money anytime and anywhere with a string of digits. Cost and time saved by not visiting banks outweigh commission charged for online transaction. Still, customers want free-of-charge payment system.
In western films, masked robbers sometime appear to rob a bank by threatening with a guns. Now, hackers can save the hassles and take money out by manipulating some digits online. Still, unless they are able to withdraw the money as tangible bills, they are useless.
It is not that easy for robbers to open the firmly locked banks’ door. Today, a new type of scam is emerging by deceiving naive customers with sweet talk. They are so skillful that even general customers are deceived into sending their money to wrong bank accounts. They may save some of them only if they immediately notice that they are deceived. This shows that people can be badly damaged with a simple click.
In the online world, countless information is being accumulated. Search engine accurately records the information, order and time users search. For instance, information about customers playing online games is recorded. How many times they hit targets during shooting games and what time and with whom they play are all saved. Further, Users themselves upload photos and comments about where they are, who they are with and what they eat. Information overflows on the Internet.
Fintech uses this kind of information. When customers apply for loans, banks may not know financial status of them. But, when banks analyze their spending, human relationships and working boundaries, they can predict the customers’ credit standing even without verifying them at credit ratings agencies. In fact, the credit ratings agencies do not have detailed information about small loans because they are busy analyzing big customers.
Interest rates on credit loans are higher than those of mortgage loans. Default rates of credit loans are lower than those of credit loans. This means that banks should increase the proportion of credit loans. Still, they are complacent with the old tradition of focusing on mortgage loans. Research shows that small loans borrowers pay off faster, women have higher credit ratings than men and people with better relationships delay payment less.
Dealing with fintech by absorbing an online payment system into the financial industry is not easy. An online payment system can only be meaningful when it has hundreds of million subscribers and partner stores. Also, it is not easy for the financial industry to get away from the government regulation while the key of the Internet is freedom. Unless the financial industry takes off regulation and completely becomes online companies, it is difficult for them to make an online payment system as its main source of revenue. This because the system can only work well when integrated with distribution. Under the current law separating industrial and financial capital, it is impossible for financial companies to run online shopping malls.
Still, it is possible to increase loans by selecting good customers through data analysis. Data has all the direction and answer. So far, as Korean banks have pushed sales in an old-fashioned way, they haven’t analyzed customer data. Mortgage loans, rising housing prices and the government’s financial support all make them complacent.
However, it is time for the financial industry to face cold spell. Banks are now joining the government’s efforts to shift customers’ short-term loans to long-term loans. Apart from this, loan portfolio shift to minimize risky asset, low interest rate trend, fierce competition to inflate size and regulation shifts, banks’ loan-deposit margin is decreasing. So, it is necessary for the financial institutions to turn to data analysis.
Fintech is closer to information communications technology rather than the financial industry. As information technology is based on protocol and algorithm, when it needs make important decisions, it pursues profit maximization based on simulation results. Here, fintech can find a new way out. For some Koreans, fintech and an online payment system are identical. Fintech is an unfinished experiment, which can open a new field by integrating information technology with imagination.
By Kim Hyoung-joong (professor of department of cyber defence at Korea University)
