E-Finance Development in Korea

Author: 
Choong Young Ahn
Doo Yong Yang
Description: 
Public Access Documents
JEL codes: 
Abstract: 
E-finance in Korea has evolved since the late 1980s, when developments in information and telecommunication technology started to be applied to the financial industry. Since the 1990s, e-finance has led a paradigm shift in the financial industry as financial transactions in computer-based tools began increasing. There are several factors that contributed to e-finance development. Korea possess the basic requisite conditions to foster thriving e-finance, including an advanced IT infrastructure, several government e-commerce initiatives and financial restructuring resulting from the financial crisis. In fact, all of these factors have eliminated possible impediments to the development of e-finance in developing countries. This paper shows that the decision for the introduction of internet banking depends on the profit level for the bank rather than the asset size and/or operation costs. Intuitively, large banks are early takers in providing Internet banking de to a huge amount of initial investment costs to establish an Internet banking network. At the same time, cost inefficient banks are inclined to consider the introduction of Internet banking earlier to reduce inefficiency caused by replacing cost-inefficient infrastructure. However, Korea shows an interesting case such that the asset size and operation costs were irrelevant to the establishment of Internet banking networks. On the other hand, profitability was relevant to the introduction of Internet banking. This may imply that relatively profitable banks at the onset of the crisis were able to jump into e-finance earlier than non-profitable banks. Furthermore, this paper shows that the adoption of internet banking has a positive effect of bank profit.