K bank is the first internet-only bank in South Korea. Launched in April 2017, it was also the first bank in 25 years to get an approval from the Korean Financial Supervisory Service to start commercial banking business. K bank provides real time access through mobile and web applications, to its commercial banking service offerings such as deposits, consumer and corporate loans, overdraft facilities (dubbed Mini K), money transfer service, international remittances and mortgage loan products. Customers of the bank also have free access to ATMs installed at the local convenience store chain, GS25, and its 24 / 7 customer centre for financial consultation. During its first year in operation, K bank attracted over 700k customers with almost KRW 1 trillion ($947.5 million) in deposits and KRW 1.3 trillion ($1.15 billion) in lending.

In December 2015, the Korean Financial Supervisory Service had provided preliminary approval to launch a digital only bank to two companies – KT Group, one of the biggest telecom company, and KakaoTalk, a popular instant messaging App. KT Group is the leading shareholder of K bank, and KakaoTalk is that of KaKao Bank. With regulatory restriction that prevented customers from opening more than one account in a single month, it was strategically important for both K bank and Kakao Bank to be the first to start operations before its competition in order to capture the market share. To achieve this K bank was looking for a robust but flexible technology platform to cater to its’ internet-only and non-face-to-face business processes.

For the system implementation, K bank considered 3 different approaches – selecting a vendor for its own in-house development, adopting an in-house system developed by other Korean banks, or selecting a banking solution from a supplier. The first option, developing its own banking system, which is done by most banks in Korea, was ruled out from the beginning as the bank thought it would take too much time. The second option of using an existing bank’s system was also rejected due to significant difference in the nature and process of the business. The bank finally went with the third approach of using a supplier, and selected Bankware Global after multiple demos and evaluation sessions. The supplier’s Korean IT expertise and the modern architecture of its’ banking package were the main clinchers for the securing the contract.

This was a greenfield implementation for a first of its kind internet-only bank in the country. Hence, there was a considerable technical challenge for Bankware Global. The supplier, in addition to its core systems BX CBP (Core banking package), BX PF (Product factory) and BX Framework (Java application framework), had to also deploy new technology systems such as OCR for non-facing customer authentication, scraping, and biometric authentication to facilitate non-face-to-face channels model of the bank. Interfaces to the various organisations, encompassing 480 interface formats for 12 external agencies, also had to be developed.

From the beginning, K bank was clear on the key requirements from the systems. They wanted an easily configurable system where bank personnel could define the business rules themselves, and an open architecture where various components could be assembled using APIs.

The implementation was kicked off in March 2016 and was slated to be completed in one year. The relatively short timeline necessary to launch first, meant that the supplier and the bank had to adopt different strategies to meet this goal. This was achieved by utilising a phased-approach and package-approach strategy; systems supporting the core products and services were deployed in the initial phase and in subsequent phases, additional products/services were added to the core system. The other way to ensure a speedy system implementation was that K bank chose to keep customization to the minimum and retained most of the “out-of-box” package functionality and configuration engines. Customization was carried out only to cater to the country’s regulation, interface with external entities and to support few of K bank specific processes.

A major challenge during the entire project was getting adequately trained resources for the implementation. The bank did not have ready resources available at the start of the project. There was also a dearth of banking experts in both business and IT in South Korea. Hence, only about 10 bank personnel were involved. However, from the suppliers’ side, up to 80 personnel, whose work expertise was thoroughly verified by the bank, were deployed in the most people-intensive phase of the project. There was a great deal of cohesion in the project with roles very well defined for both parties. The bank was responsible for the requirement definition, interaction with external entities and the overall project management while Bankware took ownership of system design and development.

Another area of concern for K bank was the aggressive timelines and the quantum of investments being made for the core banking system. Since this was a new bank with an unproven business model in the country, the bank could not afford any mistakes as it would mean missing out on the first mover advantage, resulting in additional pressure on the budget and delaying the expected break-even of around 4-5 years.

The system was delivered in February 2017, just 11 months after initiation. The bank conducted beta testing by opening the services to internal team members. The system went live in April 2017. K bank was satisfied by the outcome of the implementation. The bank was able to provide financial services such as opening a new account, requesting for a loan, and submitting the card application in less than 10 minutes 24 / 7 through non-face-to-face customer channels. The bank was of the view that round-the-clock service and superior customer service was a major differentiator.

K bank was also able to achieve business and IT agility, reducing time-to-market of new products and responding quickly to changes in IT environment. Streamlining of operations reduced the resources required to maintain the core banking system by 40% and optimized its operational expenditure. This was clearly illustrated by the early success of the bank in meeting its projected yearly targets. Within 100 days of opening, 400k customers were onboarded, KRW 610 billion ($ 542 million) was lent and the bank had KRW 650 billion ($ 578 million) in deposits. In IBSI’s view, K bank was able to leverage the first-mover advantage primarily because of the robust platform delivered by Bankware Global. This implementation would also pave the way for other players in South Korea as more internet-only banks emerge.

Key Facts

  • Bank: K bank, South Korea
  • Financials: Deposits of US$ 947.5 million; Loan book of US$ 1.15 billion (April 2018)
  • Business model: Internet-only Bank
  • Supplier: Bankware Global
  • Solution implemented: BX CBP, BX PF, BX Framework
  • Timeline: 11 month

 

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by Devansh Patel
Lead Analyst, Research Team, devanshp@ibsintelligence.com
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