Korea: Mobile Banking Takes Off

For Korea's finance and cellular industries, it's a win-win deal

It's payday at the Nice Guy hair salon in suburban Seoul. But owner Lee Hi Suk has no reason to visit her bank. Instead, she whips out her cell phone and punches in a six-digit ID number. In an instant, her phone has become a handheld automated teller machine. Sure, it can't cough up any cash, but otherwise it's just about as capable as any bank teller or ATM in Korea. With just a few more clicks, Lee transfers her three employees' salaries from her corporate account to their banks, then switches to her personal account to pay her gas bill, her cable-TV fee, and a bill from her 8-year-old son's taekwondo school. "I can do my banking from an armchair or at a coffee shop," she marvels. "I no longer have to drive to my bank and queue up." Good thing, since in the past she has used the service to pay speeding tickets.

A lot more people will soon be able to avoid speeding to the bank. In June, some 581,000 Koreans used their cell phones to complete a total of 4 million banking transactions, the Bank of Korea, the central bank, reports. All of South Korea's retail banks now offer mobile banking, and every month, more than 300,000 people buy new phones equipped with a special slot where subscribers can plug in a tiny memory chip with their banking data and an encryption code for secure transactions.

While mobile banking has been tried before in Korea and elsewhere, the chip makes the new service far easier to use -- and far more popular -- than earlier schemes. In two years, at least 6 million Koreans are expected to be using their phones for transferring money, reviewing transaction records, and checking foreign-exchange rates and other financial information, says Kookmin Bank (KB ), the pioneer of mobile banking. The services "have a huge potential to revolutionize the use of money," says Hyun Jun Yong, director of LG TeleCom's mobile banking unit, BankOn. "This will be a stepping stone to a cashless society."

A bit hyperbolic, perhaps. But Korea has long been a test bed for the global wireless industry, and if banking by wireless phone catches on here, the rest of the world may follow. Already, tens of thousands of restaurants and stores have terminals that read credit-card information from phones via infrared beams, letting customers avoid the hassle of swiping cards. And Seoul commuters can have bus and subway fares deducted from their accounts by flashing their phones as they pass the turnstiles.

Banks have high hopes for the service. Koreans have already set up more than 24 million online bank accounts. Given that more Koreans own cell phones than computers, and the convenience of being able to bank anytime and anyplace, bank execs believe most Net banking clients -- and many others -- will eventually sign up for mobile banking. That will likely save banks a bundle. Transactions made by cell phone cost a fifth of what face-to-face transactions do, Kookmin Bank says. With many transactions going mobile, "our branch employees can focus on consulting or other high-value activities," says Yoon Chong Ho, head of Kookmin's e-Business team.

Carriers benefit too. They gain a new revenue source -- subscribers pay a monthly fee of 70 cents for the service -- and a new way to keep customers from defecting to rival operators. LG has even used the service to expand its retail presence: The company now sells phones and signs up new subscribers at 2,800 bank branches, in addition to its 580 storefronts. "This has become a pillar of our sales drive," says LG's Hyun. As of August, LG had sold 1.1 million banking-ready handsets.

Another plus: The service gets a new set of customers hooked on using their cell phones for more than voice calls. Whereas other trendy new mobile services such as multimedia e-mail, video clips, and music downloads appeal largely to the young, banking is most popular among people in their 30s and 40s. To better serve these newcomers, SK Telecom (SKM ) may soon start offering ticket sales and shopping services to its mobile banking clients. "Banking will be another leap forward for our data service," says Cha Jin Seok, vice-president in charge of the mobile financial division of SK. It's a pretty good way to pay for a haircut, too.

By Moon Ihlwan in Seoul

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