Friday, 19 April 2024
Korean banks turn to blockchain to streamline service
A growing number of commercial banks in Korea are looking to incorporate blockchain technology into their services as they hope to keep up with internet banks like Kakao Bank that boast simple but secure authentication processes.
When Kakao Bank first launched on July 27, one of its most notable features was easy identity verification. Unlike most mobile banking services, the app did not require users to install an authentication certificate on their phones, considered one of the most cumbersome processes in Korean online banking.
“A process similar to installing an authentication certificate is embedded in our core banking system, but is designed in a way that it doesn’t exist from the user’s perspective,” a Kakao Bank spokesperson said.
With Kakao Bank’s convenient service gaining wide approval from Korean consumers, its competitors are scrambling to make their banking apps easier to use. The companies have zeroed in on the blockchain, a type of digital ledger that stores financial records on separate computers for more security, as the viable way to make authentication on their apps easier.
The Korea Federation of Banks, which represents banks in Korea, has assigned the task of developing a blockchain system for financial institutions to a tech company also known as a service integrator.
“We gathered service integrators on Aug. 10 to explain the bidding process to construct blockchain system and will sign a contract with a company that meets our criteria,” said Im Young-bin, a director on the IT committee of the banking federation. “If the blockchain system is adopted by banks first, it could expand to other financial institutions like securities, insurance and credit card companies.”
The blockchain promises the ability to localize information. Before, if a customer wanted to withdraw, say, 1 million won ($880) from a bank account, the bank would have to go through digital account books stored on the server of the Korea Financial Telecommunications and Clearings Institute, which manages interbank payments and issues authentication certificates for all of the country’s banks.
With blockchain technology, banks can store the financial information of their customers on their own servers and share them with each other, removing the need to rely on the Korea Financial Telecommunications and Clearings Institute and its certificates.
“The blockchain has low risk of hacking because if a hacker tries to hack into an account in a blockchain system, he or she would have to hack through all the transaction information of those involved,” said Min Kyung-dong, a manager at SK C&C, an IT service provider that worked with major banks like Woori and Hana.
While the size of the contract is relatively small, at 8 billion won, the scope of the project will make the company assigned to the task a leader in the financial blockchain market, which is heightening competition among leading IT service providers.
Other than SK C&C, Samsung SDS is also reportedly in the race. Samsung SDS has developed its own blockchain system and applied it to distribution and manufacturing sectors.
LG CNS is likely to appeal to its partnership with R3, the largest consortium in the world specializing in blockchain systems for finance.
The winning bidder will sign a contract with the bank federation in September, and the system created by the winner is set to be used by banks starting next April.
“While we are in the stage of confirming the reliability of the blockchain, the technology could also be applied to contracts,” said In Hoh, a professor of computer engineering at Korea University.
Re-disseminated by The Asian Banker from Korea Joongang Daily
