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Cho Yong-byoung, chairman of the Korea Federation of Banks (KFB) aims for the association to lead digital banking towards responsible innovation and consumer-centricity while balancing profits and ethics. Cho described KFB initiatives to foster digital transformation, promoting consumer trust in the sector in changing times, emphasising the My Data service, and ethical banking practices.  

The government-led My Data initiative lets citizens manage their financial data from multiple organisations on one website. Starting in a pilot phase, this service lets clients access their financial data from numerous institutions through a single app. Bank account, insurance, credit-card payments, stock investments, and loan amounts are included. 

The programme simplifies authentication and strengthens consumer protections to improve convenience, safety, and data privacy. Consolidating financial data from numerous organisations into one user-friendly platform empowers citizens. This innovative service, which includes 17 financial institutions and fintech startups, shows the country’s dedication to financial openness and consumer data control. 

The KFB chairman's passion for My Data reflects a broader vision for a banking environment that prioritises consumer convenience and data security, cultivating informed and autonomous users. 

The path to digital innovation is not without challenges. South Korean banks have been criticised for unethical actions, including misrepresenting and mis-selling financial items. These issues highlight an important facet of industry evolution: balancing innovation with ethics. 

South Korea’s equity-linked securities mis-selling scandal involves unethical sales of high-risk derivatives tied to the Hang Seng China Enterprises Index. High-volatility index of 50 Chinese firm shares traded outside mainland China. These sales practices are under scrutiny at South Korea’s largest commercial lenders and brokerages, including KB Kookmin, Shinhan, Hana, Woori, and NongHyup. 

These securities, mostly sold in 2021 when the index was at 12,000 points, have fallen, causing investor losses of around KRW 3 trillion ($2.25 billion). Similar institutions’ derivative-linked fund mis-selling incidents caused significant investor losses owing to market volatility. 

The Securities and Futures Commission has tightened intermediary norms of conduct to combat financial product mis-selling. These steps include making sure clients can handle sophisticated product transactions, even if the intermediary doesn’t encourage them. 

The 2008 financial crisis increased brokers, investment advisers, and other intermediaries’ obligation to prevent mis-selling. These regulation measures aim to protect investors by banning intermediaries from reducing their liability through contractual terms and by ensuring investors understand their investments. 

To market unsuitable financial products or services, financial mis-selling includes reckless misrepresentation. Material misrepresentation or appropriateness mis-selling can cause this issue by selling an unsuitable product or service. Large compensations and regulatory improvements to safeguard customers have resulted from bank investigation and legal action. 

Cho addresses these concerns explicitly, underlining the KFB’s commitment to ethics and transparency. The KFB hopes to restore public confidence and create a more transparent and ethical banking environment by instituting strict internal controls and promoting a customer-focused corporate culture. 

He hopes his leadership would usher in a new era of strategic innovation, consumer empowerment, and steadfast ethics in South Korean banking. Cho took over from outgoing KFB chairman Kim Kwang Soo on 1 December 2023, for a three-year tenure. His predecessor, the former chairman of NH Financial Group, was known for his deep insights and long-standing expertise in the banking sector, and he was committed to guiding the banking industry through the global pandemic and digital transformation. Kim’s experience in the finance ministry and as the commissioner at the Korea Financial Intelligence Unit offered him a unique view on South Korea’s financial scene. 

Cho will inherit a history of accomplishment and unfinished business. The industry is facing unprecedented internal and external difficulties due to the digital revolution and the global health crisis, making Cho’s appointment crucial. Kim set the stage for the KFB’s transformation, which Cho is anticipated to lead with his innovative and customer-centric ways. 

He wants to continue his predecessor’s digital revolution and address industry ethics. Misrepresentation and mis-selling of financial items cause consumer trust difficulties. He explained that he will increase openness, impose strict internal controls, and promote honesty and responsibility, harmonising with Kim’s ethical leadership and sustainable development goals. 

Cho is anticipated to pursue Kim’s projects, such as integrating digital technologies into banking services and improving South Korean banks’ worldwide competitiveness. 

His leadership will show how successfully the KFB can adjust to new times while acknowledging the achievements of its past chairman. Cho’s attempts to achieve his predecessor’s unmet goals will guide the federation towards a future where innovation, client welfare, and ethical governance underpin the South Korean banking industry. 

Cho’s experience as Shinhan Financial Group’s former chairman would help him comprehend the finance business. He is the first graduate of Shinhan from one of the four big banks to hold this key position, breaking a 30-year tradition. The KFB’s leadership is shifting from government-sector chairs to private-sector executives with his nomination. 

Cho was noted for his problem-solving skills and contributions to the banking industry, especially during regulatory scrutiny of monopoly activities and innovation deficiencies. Communication and collaboration with financial authorities were hallmarks of his leadership. This competence should help the KFB solve industry issues like regulatory pressures, innovation, and customer trust. 

His surprise departure from Shinhan, in line with the financial authorities’ call for financial leadership transition, shows his response to industry-wide reform and governance calls. His rise to the top of a financial holding corporation shows his leadership and banking expertise. 

Cho’s first KFB challenges include combating industry mis-selling of financial goods and restructuring banks’ profit systems to boost non-interest income. These efforts are essential for rebuilding public trust and modernising banks. Cho’s expertise in leadership, innovation, and regulatory rapport equips him to lead the KFB through these difficult problems and promote a more innovative, transparent, and customer-centric banking sector in South Korea. 

The KFB’s guidance as the industry transitions to a more inclusive and responsible future is vital. Through collaborative efforts like the My Data campaign and a dedication to ethics, the federation is creating a global standard for modern banking. 

As South Korea adopts these changes, the world watches. Under Cho, the KFB may set the future banking standard by combining profitability, principle, innovation, and honesty.

The following is the full transcript of the interview between The Asian Banker’s managing editor Foo Boon Ping and Cho Yong-byoung, chairman of Korea Federation of Banks.

Foo Boon Ping (FBP): What are your immediate priorities as the new president of the KFB?

Cho Yong-byoung (CYB): Since I was sworn in as chairman of the Korean Federation of Banks, I have focused on three main values: Back to the basics, transformation and prospering in harmony.

When banks have further developed their core businesses and kept innovating, they can restore the confidence from the public in local banks and have a potential to achieve sustainable growth. For now, the current challenge we are facing is to support the implementation of People’s Livelihood Financial Aid Act next month.

Korean banks have prepared support packages worth KRW 2 trillion ($1.5 billion), historically the largest in size, to help self-employed and small business owners who are main patrons of the banks with returning loan interests since they have suffered from the high interest rates. The package aims to not only help small businesses but also allows the banks to solidify the trust from them.

In the future, the top priority will be to lay the foundation to improve a slew of policies to drive innovation in the Korean banking industry. For example, to ensure the banks lead the innovation in the financial industry, the federation will do its best to improve regulations such as allowing the entry into non-financial fields and diversifying work commissions.

FBP: How do you plan to leverage your experience at Shinhan Financial Group to guide the KFB?

CYB: I have had first hand experiences on digital transformation and expansion into the global market at Shinhan Bank so that I understand the challenges stemming from various regulations. Also, when I served as chairman of Shinhan Financial Group, I developed an acute and yet wide insight into the financial service industry beyond conventional banking based on experiences on the operation of a comprehensive financial platform.

Besides, working along with the Korean government for government-led policy-based businesses, I learned how to communicate effectively with it, as with delivering aid during COVID-19. Armed with these experiences, I am confident that I can and will serve as a conduit between the banking industry and the governmental authority, providing win-win solutions.

FBP: What vision do you have for the KFB’s role in the broader banking sector?

CYB: I believe the role of the KFB is about increasing the value of the Korean banking industry. The federation is blessed with a cream-of-the-crop of employees with passion, expertise and great teamwork. So, we plan to meet the needs of members with gusto.

From the perspective of a broader banking industry, today’s banking industry has restructured themselves as financial holding companies rather than banks per se. Therefore, unlike in the past when the federation focused on the needs of banks, subsidiaries of financial groups, from now on, we aim to contribute to establishing the values of financial groups as a whole by meeting the needs of the holding companies.

FBP: How have you observed the retail and digital finance sectors evolving in South Korea?

CYB: In Korea, digital finance took its first step by offering easier and more convenient financial services and now has evolved into concentration on specific areas and customised finances. In the beginning of the digital finances era, the focus was on improving processes such as simpler money transfer and payment and introducing more convenient certificate technologies by abolishing accredited certificates and introducing biometric certificates.

Recently, as financial services have evolved around platforms, information concentration and convergence have been more dynamic and developments of big data and artificial intelligence (AI) have made it easier to consumer analysis, leading to faster progress on customised service.

FBP: In what ways do you see these trends influencing or learning from global financial best practices?

CYB: Hyper-personalisation as a finance trend is undeniably a global trend going beyond Korea. For example, DBS in Singapore provided non-financial services and opened its application programming interface (API), leading to more sophisticated hyper-personalisation services.

Many other global banks have fully utilised AI and data, going beyond service concentration and hyper-personalisation into super-apps. Innovation of banks in each country has served as benchmarking cases for one another, speeding up innovation.

FBP: The banking sector in South Korea has been criticised in the domestic media for being monopolistic and lacking innovation. How do you plan to address and respond to these concerns?

CYB: The reason behind this criticism against the Korean banking industry is that local banks have overly relied on loan deposit margin and local competition. If local banks steer clear of that dependency on loan deposit margin and offer differentiated customer service, I am confident they can overcome this criticism.

Recently, many Korean banks have introduced AI asset management and expanded into non-financial services such as delivery and Mobile Virtual Network Operator (MVNO) call plans.

Besides, going global with aggressive localisation strategies for banks will be a great opportunity to boast their competitiveness and innovation level and to secure new growth engines.

FBP: What strategies do you propose for balancing the industry’s profitability with public interests, especially regarding a proposed windfall tax?

CYB: Without compromising the health and liquidity of banks, they themselves should consider public interests proactively. Especially, given that the windfall tax has been discussed in Korea recently, local banks should have a big picture to look at the economic ecosystem rather than focusing on short term profits. Once banks show sincerity, without introducing windfall tax that can potentially distort the market, market autonomy itself can ensure local banks to see to their social responsibilities.

FBP: What are some of the most impactful innovations the financial industry has introduced recently?

CYB: I cite the open banking and finance initiative, My Data, as an exemplary case. Open banking is about opening of banks’ payment settlement network after standardisation to fintech companies.

Before open banking, if fintech firms wanted to provide innovative services, each bank needed its own separate network. As of now, open banking has allowed all local banks to be connected seamlessly, allowing a variety of innovative financial services with a lower price tag.

On the other hand, My Data is a system for individuals to integrate and search one’s credit information at one place. Therefore, consumers can check one’s financial assets and consumption patterns at one glance. Nowadays, consumers have been able to enjoy comparison and recommendations offered by My Data businesses, asset/consumption management and other types of financial services.

FBP: How do these innovations reflect the changing needs and behaviours of consumers?    

CYB: Recently, consumers have wanted more information and more personalised financial services. To meet consumer needs, A solid system should be in place for consumer information to be gathered safely via open banking and My Data without cost burden.

In particular, Korea’s innovation services are benchmarked against advanced European countries. However, they did not stop there. Armed with the Korean government’s active involvement, standard API development, more Korea-centric services have been offered.

Nowadays, based on open banking and My Data, platform competitions between financial firms and fintech companies will be even more fierce and consumers will enjoy more sophisticated hyper-personalised services.

FBP: In light of recent cases of misconduct by bank employees reported by the media, what steps will you take to restore customer trust in banks?

CYB: In reality, it is next to impossible to remove all corruption and other human risks. However, given that trust is the foundation of the banking industry, to effectively prevent any issues, a system and respectable corporate culture should be established.

The KFB complemented the code of conduct regarding internal control within the banking industry and local banks are in the process of adopting the Responsibilities Map, a benchmarking case on overseas internal control.

At the same time, by upgrading key performance indicators, moving away from performance-based evaluation to company-wide internal control mindset, banks have spared no efforts to create a new corporate culture.

FBP: What are your plans for innovating the banks’ profit systems, particularly in expanding non-interest income streams?

CYB: First of all, the focus should be on improving the system to increase the banking portfolio. Banks should aggressively suggest ideas for system improvement to reflect the demands of the banking industry such as expansion into non-financial areas and entry into the digital asset business.

For asset management, banks are in the process of suggesting regulation improvements on bancassurance and sophistication of asset management service.

Also, given today’s financial group structure, banks should establish synergy effects among bank subsidiaries and other subsidiaries. Then they will be able to promote task commissioning among subsidiaries.

FBP: Can you elaborate on how your approach at Shinhan, particularly in managing the important relationship with financial authorities, will inform your strategy at the KFB?

CYB: Serving as Shinhan Financial Group’s chairman, I realised how critical the banking industry is to the national economy. In cooperation with the government, I was actively involved in the COVID-19 loan-maturity extension, deferral of payment, short-term liquidity aid and other government policies. 

These activities can be a drag on bank profitability temporarily. However, all stakeholders have realised banks should think of public interests for sustainable development of the financial industry ecosystem.

To be sure, profitability is one of top priorities. However, if the banking industry understands its enormous responsibilities, I believe the banking industry and the Korean government can establish stable relations and secure mid to long-term growth of the banking industry.

FBP: How do you plan to communicate and negotiate the industry’s position with financial regulators?

CYB: KFB aims to serve as a bridge between the authority and local banks for the long-term development of the banking industry. KFB will host a meeting where both working and C-levels can discuss with the financial authority on a regular and ad hoc level. The meeting aims to discuss the hot topics for the overall growth of the national economy and the financial industry as a whole rather than simply conveying their requests.

FBP: Your predecessor, Kim Kwang Soo, expressed concerns and regrets about unrecognised and uncompleted efforts in financial regulations and customer relations. What lessons do you draw from his tenure and remarks?

CYB: Thanks to his efforts, the foundation was laid to establish a system to transform digitalisation of banks, enter non-financial fields and go global, gaining momentum. I have tremendous respect for him. The industry has well recognised his unwavering devotion for social responsibility.

Unfortunately, last year, we faced criticism of the industry and other challenges. I suspect he would have wanted to do more. The lesson learned was, to build public trust in the banks, they should take proactive and full-fledged efforts by taking stock of consumer needs and wants.

FBP: How do you plan to build upon these efforts and address the challenges he mentioned?

CYB: The top priority of chairman Kim was digital transformation, social responsibility and global expansion. To ensure digital transformation has led to substantial results, I am determined to establish an institution where platform and entry into non-financial areas are established.

Regarding social responsibility, the local bank prepared the biggest aid in size worth KRW 2 trillion ($1.5 billion) for small businesses. I will make sure the aid will be implemented without hiccup and be more responsive to social demands.

Regarding entry into the global market, we will ensure the banking industry adopts localisation via mergers and acquisitions, and joint ventures with overseas financial and non-financial firms, and highlight where this has tried to improve Korean regulations.

FBP: Looking ahead, what do you envision for the future of banking in South Korea?

CYB: When the integration of financial and non-financial fields has progressed even further, the era where customers do not see differences between banks and tech firms to utilise their services will come. In that process, banks and tech firms not only will have competed but also furthered their corporations.

Also, due to change in social structure and continuous innovation, the non-interest income portion will grow bigger. 

The saturated Korean market and low fertility rate only mean the conventional banking business model will have its own limit for growth.

Rather, when banks go global and offer non-financial daily services, new various income sources will be created. Still, interest income has kept serving the core business for the banking industry but big changes are inevitable.

Digital platform innovation and banks’ entry into non-financial services, have integrated data from financial and non-financial fields, and differentiated credit evaluation will be possible.

Then atypical property loan and thin-file loan markets that are a rather difficult market to enter for banks due to high risk, will see the change in corporate and trade businesses.

FBP: How can Korean banks continue to be leaders in innovation on the global stage?

CYB: If Korean banks intend to keep the innovation-leader status on the global stage, they should expand into the global market aggressively with digitalisation and localisation. 

In the past, even Korean banks set up overseas, they mainly served Korean companies in the overseas market. Today, they have grown enough to acquire financial firms overseas, mainly in Southeast Asia. 

In the future, by utilising advanced Korean digital capacity, they should adopt low-cost yet convenient and innovative financial services to overseas customers. In the case of financial groups, banks and non-bank financial subsidiaries go to the market simultaneously and need to focus on establishing synergy and strengths. 

Especially, when banks have collaboration with innovative financial and non-financial startups for investment and alliance from developing countries in Asia, it will lead to bigger synergy.

I believe this kind of effort will allow us to be the global innovation leader and serve as a meaningful partner contributing to overseas economic development.

FBP: Thank you.

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industry ethics, Innovation, Digital Transformation, equitable financial practices, equity-linked securities, financial scandals, financial product mis-selling, ethical banking, customer-focused culture, financial industry expertise, collaboration, consumer-centric services, global competitiveness, financial authority, digital finance evolution, hyper-personalisation, customer trust, financial regulations, future of banking