Digital Distribution Channels for Financial Services Products Take Flight in Korea
December 2, 2021 — Singapore
The implementation of MyData from 2022 is expected to further accelerate the digitalization of financial products
Fintech players are disrupting the status quo of traditional financial distribution channels in various markets, and South Korea is no exception. In fact, the digitalization of distribution channels for financial services products was already in full swing before COVID-19, with recent pandemic-related lockdowns spurring faster growth. Going forward, the implementation in 2022 of MyData, a full-fledged financial data service, is expected to further transform and accelerate the digitalization of financial products.
Although digital channels account for a large proportion of sales activities, more complex transactions remain very much tied to face-to-face channels, due to greater regulatory intervention and complex documentary support requirements. Moreover, individuals with the most spending power tend to be older, less internet-savvy, and prefer face-to-face channels for higher-value transactions such as life insurance, funds, and investments. This could be one of the reasons for the small share of digital sales of life insurance and wealth products, even post-COVID-19.
On the other hand, this strong preference for online transactions among a younger generation indicates that digitalization of distribution channels could be a game changer for foreign and smaller players in the Korean market. Many such players, which lack strong offline traditional distribution channels, are well-placed to disrupt the Korean financial industry with innovative product developments.
Furthermore, the rules of engagement are changing in the Korean financial industry with the introduction of MyData next year. The revised Data 3 Act, which came into effect on Aug. 5, 2020, allows government-licensed MyData business operators to access personal credit information stored by other companies (with the consent of individuals) to customize client-specific products and sell more complex products through online channels. This could lead to many innovative services that combine the data that the provider already has with the financial information of other companies obtained through the MyData business. Applicable products include mutual funds, wealth management services, and investment-linked insurance plans.
Companies that have signed up for MyData so far are mostly distribution channels, such as banks, brokerage houses, fintech companies, and asset management houses with retail distribution capabilities. Mutual funds distribution by banks or securities houses could involve the customization of portfolios using individual MyData credit scores, spending and savings patterns, tax records, and current asset holdings at various banks. As participants will increasingly allow external parties to access their proprietary customer information, companies will have to adapt and innovate to retain or gain marketshare amid increasing competition.
“As traditional face-to-face distribution channels become increasingly less influential with time, Cerulli believes that fintech players will emerge as an important distribution channel for all financial products, by increasingly offering more innovative and customized products that require less face-to-face sales efforts,” said Ken Yap, Managing Director, Asia with Cerulli. “Asset managers should therefore look at opportunities provided by fintech entities.”
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