(Bloomberg) -- Going to the bank for day-to-day tasks is becoming passe in hyper-digitally-connected South Korea. Citigroup Inc. is responding by betting more on giving investment advice to the growing number of the wealthy.
As consumers handle most of their banking transactions online, the number of bank outlets is dropping across Korea. Citigroup’s Korea unit has reduced its physical branches to 44 from 133 in the past year. The U.S. lender is planning to double the size of its wealth management business in the country in the next few years, according to Brendan Carney, Citibank Korea Inc.’s consumer banking head.
“The revolution in banking is that because of technology changes, customer behavior is changing every single day and their expectation is changing every day,” Carney said in an interview in Seoul. “I think we are the model for the future for Citi.”
The changes are coming fast in the banking sector of South Korea, one of the world’s most digitally-advanced countries. Smartphone users made up 71.5 percent of the population in the country, the fourth-highest in the world, according to consultancy Newzoo, and 99.5 percent of households have access to the Internet, Korean government data show. In the meantime, the domestic branches of six major Korean banks decreased 10 percent in the two years through September, according to the Financial Supervisory Service.
Lenders are having to rethink their strategies. For Citibank Korea, the focus is on the country’s affluent customers.
The population of high-net-worth individuals in the country has risen every year since 2012, and grew by 7.7 percent to 207,600 people in 2016, according to data from Capgemini. Their wealth increased by 8.2 percent to $573 billion that year. The firm defines such individuals as those having investable assets of $1 million or more, excluding primary residence, collectibles, consumables and consumer durables.
Korea Investors Service says that while Citibank Korea’s transformation will likely have a positive effect on its profitability, its large-scale reduction of branches may weaken its market position.
Carney says Citibank is following industry trends.
“The measure of a bank is not how many branches you have,” he said. “The way people are measuring the accessibility of their bank is changing. It’s a completely different game now.”
Customers now conduct 97 percent of their day-to-day banking transactions digitally, according to Carney. Investment transactions, which are more complicated, still mostly take place in face-to-face settings, he said.
The U.S. bank aims to increase relationship managers in its Korean wealth management operations by 50 to 60 people by the end of the year, Carney said. It had 137 of such managers as of last month. The bank saw its revenue in wealth management increased 25 percent in the nation last year through the transformation, it said.
There’s growing interest among Korean investors in putting their money offshore, including in dollar-denominated funds after declines in the U.S. currency, according to Carney.
“We see increasing sophistication in Korean investors’ demand,” he said. The executive said customers are looking for advice on how to diversify and become less reliant on domestic investments.
©2018 Bloomberg L.P.