The Granite Tower
Rising From the Ashes
Ha Yoo Jeong, Song Yeonsoo  |,
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승인 2018.05.06  20:53:22
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 Rising From the Ashes
In various social and economic aspects, 2018 holds much significance in that it commemorates the 20th anniversary since the apotheosis of the International Monetary Fund (IMF) Crisis in 1998. The wave that struck the nation’s economic and social structure was unprecedented, leaving long-lasting marks in several industries; some businesses withered amidst the storm while some managed to remain strong despite it all. Out of all the industries that prevailed through the crisis, finance and Information Technology (IT) are among those that were most affected.
▲ Provided by ApplikeLogo of KEB
Finance and IT are two of the most influential and rapidly evolving industries in Korea. Mismanagement of foreign currency policies and a precipitous reduction in export levels during the 1980s and 1990s, which was then followed by a national economic crisis, drained foreign currency from banks during the era. The vicious cycle led several major businesses within the nation to the brink of bankruptcy and beyond. Among Korean industries, banks and other financial institutions were most directly influenced by the IMF crisis.
Twenty years after the crisis, the financial industry in Korea is now highly sensitive and subject to changing social and economic trends in all aspects of Korean society. After repeated expansion and alacritous contraction, businesses such as banks and life insurance companies in the financial industry eventually underwent a massive explosion in size, which is evidenced by the gross asset of the industry.
According to the Financial Supervisory Service, the gross asset of the financial industry grew over three times in size, from about 900 trillion won in 1999 to 3,120 trillion won by the end of 2013— even faster than the growth rate of the national Gross Domestic Product (GDP). New businesses such as stock management and asset management emerged as blue ocean markets, leading to a 13 percent increase in the total number of employees serving in the financial industry between 1999 and 2013.
Amidst such rapid growth, the banking industry in particular has grown nearly three times its original size since the IMF crisis. However, the number of banks since the end of 1999 has in fact reduced as they suffered through their fair share of additional damage, overhauled their policies, and saw their management systems adapt to survive. Dozens of financial holding companies that absorbed different banks were established, starting with the Woori and Shinhan financial holding companies founded in 2001. Changes in the financial sector are best elucidated by comparing a bank that, unable to keep up with the times, disappeared into the annals of history with a system of banking that recently gained traction by catering to the needs of its consumers.
For many Korean businesses dabbling in international commerce, active foreign trade and booming exports are synonymous with the development of the IT industry. Korean IT companies’ high involvement in overseas markets owes a debt to their decision to specialize in IT gadget hardware manufacturing. The IT industry is one of the largest, most mainstream industries in Korea that is attracting attention across the nation. According to the 2017 Annual Info-communications Promotion reported by the government, the Information and Communications Technologies industry has grown 5.3 percent in 2017 alone.
The Downfall of Korea Exchange Bank
Korea Exchange Bank (KEB) ceased to be an independent bank as of January 2015. Its consolidation with Hana Bank led to the establishment of KEB Hana Bank, a commercial bank still standing today. KEB was one of the biggest banks in the nation that facilitated foreign currency transactions during the peak of its management and dealt with nearly 40 percent of all foreign currency income. The foreign currency management department within the Bank of Korea (BOK) was KEB’s original home.
KEB only achieved independence from BOK due to a plan devised by the Park Jung-hee administration. The bank was established as a means to efficiently support the Economic Development Plan of the government, at the core of which was a plan to usher in national prosperity through increasing net exports. Boosting exports entailed an influx of foreign banks, and authorities decided that there was an urgent need for the government to strategically invest in a bank that could compete with them over customers making transactions with foreign currency. According to the Korean Foreign Currency Bank Law that was declared on July 1966, KEB would inherit the assets of the foreign currency department of BOK as well as its debt; this marked the beginnings of the fledgling KEB.
Come the IMF crisis, KEB’s glory days were behind it as the bank fell into disarray from malinvestment and a soaring exchange rate. KEB was not alone in its plight; other banks followed in its footsteps. According to Professor Kim Jin Il (Department of Economics), people were blinded by two misconceptions around 1998. They thought banks were owned by the government, which turned out to be false; they also believed exchange rates were fixed because it was around 800 won per dollar for a few decades and they thought that the government had an ironclad grasp around it.
Kim continued, “The exchange rate moved from 800 won per dollar to 900 won per dollar and even 2,000 won per dollar at the height of the crisis, which led to the failure of most banks.” Since banks in Korea were used to being bailed out at times of crisis, they waited for anact of providence from the government. Only this time, the simultaneous breakdown of the banking industry due to irresponsible loaning practices meant that the government could not resuscitate every bank. Therefore, the remaining banks ended up borrowing money from the far more demanding IMF rather than the government, whose loans usually came with no strings attached.
Moreover, According to Professor Kang Kyu Ho (Depar tment of Economics), KEB needed dollars at the time and the only company that wanted to buy the company in dollars was Lone Star Funds. Kang added, “Speaking for Lone Star, a few years later, they realized that KEB’s company value had risen over the years, and they resolved to recoup their previous losses by taking advantage of said growth. Hana Bank, meanwhile, was looking to expand its businesses. That was how Hana Bank and KEB became what they are today.”
▲ Provided by BOK
The Next Phase of Banks
The financial sector of today vastly differs from that of the past. For one, growth in the IT industry led non-encounter channels of financial services to grow immensely in size. Non -encounter channels include Internet banking, mobile banking, and telephone banking, along with banking through Cash Dispensers (CD) and Automated Teller Machines (ATM)—all of which enable versatile financial exchange. Non-encounter channels have surpassed encountering channels (such as getting work done with tellers in banks) as the preferred means of financial transaction.
According to BOK, the usage of encountering channels dropped from 26.3 percent near the end of 2005 to 12.2 percent at the end of 2013. On the other hand, Internet banking grew from 18.6 percent in 2005 to 34.1 percent as the end of 2013 neared. Thus, the usage of Internet banking grew approximately 1.8 times within the time frame of less than a decade.
As the popularity of non-encounter channels in financial industries grew, some experts have cast doubt on whether financial institutions in Korea would be capable of adopting such channels. However, the fact that comparatively few consumers entering the Digital Age felt uncomfortable with non- encounter channels helped the channels prosper day by day.
Among non-encounter channels, mobile trading services are trending over the previously popular web trading or the telephone trading methods that were all the rage in the past. Out of all the channels, Internet banking and mobile banking boasted the largest popularity. Usage of Internet banking and mobile banking marked nearly three times larger in usage rates than previous telebanking systems. 
▲ Provided by Toss Logo of Toss

The Rise of Toss and KEB Hana Bank’s Efforts
A company that took advantage of this trend is Toss. As of February of 2015, Toss became the first company in the financial industry to host monetary transfer services without requiring authentication certificates; Kakao Bank and other banks have since followed in the footsteps of Toss. Only requiring users to synchronize their bank accounts with the Toss application, Toss has rendered small-scale financial transactions tremendously convenient. Such convenience, according to Professor Kang, is the “leading factor of success” in the service.
Toss, in the form of an online application (app), marks an average of 500,000 transfer dealings per day, taking up five percent of the monetary transfer market. The system managed to trend among Koreans by paying acute attention to the way people share information with others in the Digital Age. As Professor Kim articulated, “It latched onto the psychology of the Korean people.”
▲ Photographed by Cho Eun Byul Professor Kim Jin Il with GT
“They made a program that people can recommend to their friends and gain traction via word of mouth. I think it’s their greatest strength,” Kim noted. Based on a report filed by the company, out of the 7 million users of Toss, more than half of the users are in their 20s or 30s; these are the people passionate about sharing information about themselves, through whichever platform. Toss successfully seized the opportunity that such a trend presented.
In an attempt to hitch a ride on the Toss bandwagon, many extant financial institutions are going to great lengths to revamp their services. For one, KEB Hana Bank recently renewed their services and opened its personal banking service. The personal banking service is the smart phone banking system that they have named 1Q Bank. The quick transfer function enables the transfer of money under one million won without an authentication certificate or an additional security measure—the key role of non-encounter channels.
Legal boundaries do not allow transfer services like Toss and Kakao Bank to make new offline branches at the moment, hindering their ability to evaluate or provide loans to conglomerates. “If someone wants to buy a house, you have to go through the hassle of checking their credibility—which you cannot all do online,” Professor Kang emphasized. In this sense, KEB Hana Bank has an edge over Toss and Kakao Bank in that it is able to mine profit from providing loans on a large scale.
▲ Provided by Hani Nuri The IMF Crisis
Avoiding the Trap
After going through grueling reforms, KEB Hana Bank now stands tall with over 20 branches overseas and about 120 in the country, enjoying large profits even compared to other major commercial banks. The latter have also moved to accommodate the current trend. Daegu Bank incorporated open banking services; Citi Bank put their New Internet Banking service forward. Shinhan Bank, the Industrial Bank of Korea (IBK) and others are also extending their services toward the new frontier.
One of the significant takeaways from KEB Hana Bank and Toss’s precedent is the importance of being sensitive to social trends, whether in the IT industry or any other industry vital to financial services. Many financial institutions were left in the dust when they failed to recognize the wave of change in the Korean economy and capitalize on it. Toss is never exempt from such a trap should it become complacent.
Fortunately for its users, Toss is constantly evolving. During a press conference celebrating the breakthrough of 10 trillion won on December 5, 2017, Lee Seung Gun, the head of Toss, said, “Toss is no longer a mere money transferring service.” It has created other platforms that allow users to remotely manage their banking accounts, small investment in real estate, and even the exchange of bitcoin—a new attempt.
▲ Provided by Logonoid Pantech Logo
The Unexpected Change in the IT Industry—The Fall of the Top Dog
With the beginning of the fourth industrial revolution, Korea matured into a leading country in advanced technology—a proud leader in IT development that produces the world’s finest machinery in all kinds of sectors. One of the biggest revolutions IT firms have brought to society is the invention of interactive mobile phones, to the extent that they have now become inseparable from the individual. The explosion in smartphone usage has even created challenges aimed at seeing who can last the longest without a mobile phone in hand.
Only 25 years ago, a phone was just a phone—a means to reach someone at the other end of the line. With the swift progression and advancement of technology, mobile phones have become the computer, the Gameboy, the pen, and the camera all combined in one device. These days, customers seek out the most compact phones with the greatest display, clearest audio and fastest processor. Many firms dived into the mobile phone market when it was first established only to be torn apart, while others survive to this day.
When asked to name some of Korea’s most prominent IT companies now, many would think of Samsung, Life’s Good (LG) or SK Group. In the early 2000s Pantech would have proudly been mentioned in the same breath as those successful firms. Since its founding in 1991, Pantech has evolved alongside the paradigm shift in technology, helping make consumers’ lives more convenient by catalyzing developments in smart technology.
From having only six employees working under a 29-year-old chief executive officer (CEO) to becoming the seventh largest mobile phone manufacturer in the world, Pantech reveled in unprecedented success. Urban legends were crafted around the company’s achievements up until the early twenty-first century. Unfortunately, this triumph was short lived; the world soon moved on from telephones to smartphones, leaving Pantech in the dust.
By no means was Pantech lacking technically, seeing as how seven out of ten employees were engineers. The downfall of one of the IT companies with| Professor Kim Jin Il with GT the most potential was precipitated by Pantech’s misinterpretation of consumer tastes. “Although the company did not want for exceptional technical expertise, they lacked the appropriate business strategy,” Professor Chung Chris Changwha (College of Business Administration) stated, emphasizing that business acumen determines whether an entire company lives or dies.
Over the decade, mobile phones have quickly evolved to suit human desire from the analog telecommunication first generation (1G) phones, to text messaging second generation (2G) and to the multimedia third generation (3G) smartphones. The demand for the latest cutting-edge smartphone surpassed that of all previous generations. Firms dived into the blue ocean with a plan to fulfill the wishes of those in demand, while others still held on to their previous designs. As the entire world was upgrading to smartphones where social media, online videos and games can be accessed on a single device, Pantech stood by and watched. In other words, Pantech did not see the global shift in mobile phone trends that impacted the firm for a few years of vital IT trend movements.
Since consumer preference was ignored, Pantech sales dwindled, leading to a decline in profits. “Seeing profits stagnate, investors would rethink or altogether stop investing in the company; with no investments, other research and production cannot continue,” Professor Chung explained, adding, “the vicious cycle repeats and eventually the company becomes unsustainable.” At the forefront of this costly process is Pantech’s subpar marketing strategy, including its failure to accurately read consumer preferences. Such missteps revealed a critical weakness that inevitably led to the decline of Pantech in the IT market.
Pantech is not the only one whose empire unraveled from the lack of business skills instead of technical obsolescence. Nokia went through a similar repertoire— but on a far more global scale. Nokia, a global leader when portable phones were first invented, is now remembered as an ancient device that resembles a brick. Much like Pantech, when the IT industry was undergoing a makeover from 2G phones to smartphones, Nokia did not let go of its worldwide 50 percent sales record of feature phones. “Nokia was afraid of change. It could not sacrifice its number one position on the mobile phone market for a revolution that was, at that time, considered uncertain,” offered Professor Chang.
▲ Provided by Shutterstock Gaming with smartphones
Hunting Tricks for the Underdog
If anyone were asked to name the top mobile phone company in the world, most would probably vacillate between Apple or Samsung. It would not be an understatement to say that the South Korean multinational conglomerate is a global leader in electronics, especially in producing high quality mobile phones, televisions, refrigerators or washing machines. Nevertheless, Samsung did not always hold this title. Through strategic business management skills and exceptional research and development (R&D), Samsung now stands out among its ilk.
Samsung Electronics Co., Ltd is known for its powerful brand awareness, distribution network and capital. It managed to perfectly balance scientific excellence with an astute knack for business, something not many firms have been able to accomplish. “One of the crucial factors that contributed to Samsung Electronics’ success is its incredible speed,” noted Professor Chang. An idea is developed in a meeting one day; its prototype is likely to be ready for testing the next day. The Professor applauded the firm’s ability to quickly manufacture an idea product into a sample product. Making a tangible product from a creative spark in a matter of hours is one principal factor in getting ahead of the trend and increasing the gap between Samsung and its competitors.
▲ Provided by Shutterstock Samsung Logo
Lessons Learned
So far in the IT market, technological integration is happening at an expeditious rate, so much so that AI is on the verge of being integrated into computers or TVs with Big Data. It is projected that by the year 2020, all the complex technical features of the household will be held in one hand. With the finalization of the fifth generation (5G) wireless system, holograms, IoT and three dimensional (3D) videos will be the hot new trend marking another leap into the fourth industrial revolution.
Companies that stumbled are getting back on their feet. Even in the midst of its business crisis, Pantech is constantly innovating and taking on bold challenges. It temporarily suspended its smartphone manufacturing sector and restructured its business once again. One could say Pantech was revolutionized by observing its failure and determining not to repeat the same blunder. It is on the right track, focusing on IoT, AI and integration via telecommunication—a promising field in the IT industry for the future. To reach this tough conclusion in restructuring the entire company, shrewd business management and accurate consumer analysis must have taken place. Although it is too early to say, Pantech has done everything it could to adapt to the bumpy long road of the fourth industrial revolution.
IT has far reaching implications even for industries that are seemingly unconnected to it—one of those industries is finance. For students to survive in the changing world of finance, “Understanding technology such as programming and AI, and thinking about them—even if there may be no such courses provided in school—are important for the students in the fastchanging trend of the financial industry both in the short term and in the long term,” Professor Kim stated.
Intent on not repeating history, KEB Hana Bank scrutinized the changing structure of the financial sector. As the world gradually progressed into a more IT-oriented society where light switches in a home can be switched off miles away just by a simple touch from a mobile phone, or hotels from hundreds of private organizations which can be viewed on one smartphone app, the financial sector did not shy away from new technology. The integration of banks with the IT industry marks a tremendous turnaround in the way people go about their ordinary lives. One such example lies in the simple act of transferring money between accounts; one would have had to visit a physical bank during business hours and wait for the money to be sent or received.
▲ Provided by Shutterstock Mobile phone evolution
As the finance sector embraced the notion that convenience is key, banks made their services available throughout the network. Firms such as KEB Hana Bank, Toss and Kakao introduced simple apps downloadable on a smartphone, in which consumers can view their account balance, transfer money or make investments without visiting a nearby bank. Both the financial and IT industries have experienced unprecedented growth and progress in Korea. The two sectors have gone through wildly different advancements. Yet, both markets suffered from the same mistakes misreading the changes in the industry and consumer preference—and both markets learned from them. Today, the two industries remain proud global leaders.
By Song Yeonsoo (


By Ha Yoo Jeong  (





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