Transformation of Financial Services in Northeast Asian Banks: An Unexpected, but Pleasant, Cultural Surprise

By Jung Kee Hong and You-il Lee

Below Dr. Jung Kee Hong and Dr. You-il Lee explore the new emergence of financial market trends shown in Northeast Asia, such as the rapid growth in bancassurance in Korea and Taiwan. The authors offer an analysis on a common cultural value that Korean and Taiwanese banking customers appreciate, and the main drivers from this common cultural value that stimulate the customers’ cross-buying intentions in their banks.

Following the Asian financial crisis in 1997, the traditional walls between banking, insurance and securities markets were rapidly demolished in Northeast Asian countries. Banks and regulators were inevitably pushed to proclaim liberalisation and deregulation of financial services. The push was mostly coming from multinational financial institutions that were fiercely seeking the opportunity for a hostile acquisition of “unhealthy”, Asian banks. One of the reasons that these implacable multinational financial institutions flagged Northeast Asian banks as “unhealthy” was because these banks were heavily focused on interest-margin business, and not on fee-based business. Therefore, they requested Northeast Asian banks to be sufficiently engaged in fee-based business, such as cross-selling financial products or more specifically cross-selling insurance, which is otherwise commonly known as bancassurance.

The intention of these multinational predators was obvious. They needed to compensate their investment as early as possible, and the fee-based business, like cross-selling financial products, could generate a more immediate profit return to them in a short period of time than traditional interest-margin based business. Moreover, the whole Asian region was under financial default after the Asian financial crisis in late 1990s. The banks and the regulators needed to find a breakthrough strategy to keep their capital investors staked in their boardrooms and also in their local market.

Growth of Bancassurance in Northeast Asian Countries

A new trend of cross-selling, or namely bancassurance, has gradually emerged and propagated quickly to country to country. In Taiwan, the regulation of bancassurance was first established in 1998. Japan enacted the related regulation for bancassurance in 2001, followed by Korea in 2003. These establishments of new regulations for bancassurance are relatively late compared to most countries in Europe, where it was established in the early 1970s and 1980s, or in the United States (US) where it was established in late 1990s when the Glass-Steagall Act was practically disposed.

Nevertheless, bancassurance in Northeast Asia, specifically in Korea and Taiwan, shows a significant success notwithstanding wrongful intentions and pushing from their investors. In Taiwan, as of 2013, bancassurance represents more than 60% proportion in new insurance sold. In Korea, as of 2012, bancassurance represents about 40% of new insurance policies sold, which has shown a consistent growth since its first introduction from 2003. These percentages of shares are higher than that of some European countries such as Germany, Netherland and the United Kingdom, and far higher than the US. where bancassurance represents less than 10%.

Bancassurance in Northeast Asia, specifically in Korea and Taiwan, shows a significant success notwithstanding wrongful intentions and pushing from their investors.
Was this success expected? Was it a fortunate coincidence due to economic recovery in Korea and Taiwan, or was it due to the right decision made by multinational financial institutions, who pushed for the strategy of cross-selling financial products in the Northeast Asian banking sectors? In fact, Korea and Taiwan have not shown a remarkable economic growth in 2000s compared to their two digits economic growth in the 1970s and 1980s. It is not also justifiable to assert that the strategy of multinational financial institutions was right, because not all bancassurance around the world had the pleasant consequences experienced by Korea and Taiwan. As such, this article investigates on a common cultural value that Korean and Taiwanese banking customers appreciate, and furthermore, extracts the main drivers from this common cultural value that stimulate the customers’ cross-buying intentions in their banks.


Skyline of downtown Seoul, South Korea from bongeunsa temple


Cultural Values and Bancassurance in Northeast Asia

Korea and Taiwan share similar cultural values, including collectivism.1 They have been recognised by cross-cultural studies as countries with highly collectivistic cultures based on various research and empirical studies. In Hofstede’s cultural dimensions, Korea and Taiwan score 18 and 17 respectively, apparently higher than the average score of 55 in European countries.2

Customers or personnel in highly collectivistic cultures express different buying behaviours and buying intentions to their counterparts in high individualistic cultures. Case in point, based on the studies of Furrer et al,3 it was noticed that customers from a collectivistic culture tended to have a higher intention to praise the service provider when they experienced positive service quality than customers from an individualistic culture. At the same time, collectivistic customers are less likely to change to another service provider or to voice a negative opinion of their service provider, even after experiencing poor service quality. This is mainly because customers in a collectivistic culture emphasise the relationship quality more than perceived value, and tend to maintain their level of trust towards the service provider consistently.

Based on these factual findings; customers in Korea and Taiwan with highly collectivistic cultures should react differently in buying behaviour compared to those in individualistic culture. Therefore, the authors have conducted a triangulation research on the influence of collectivism on customers’ cross-buying intentions in Korea and Taiwan. The interviews were deployed to senior managers in the local market who are closely engaged in cross-selling financial products at the banks. In parallel, structured surveys were given to 700 bank customers, who have answered how the key drivers of collectivism, such as perceived value, trust, image and satisfaction, will influence customers’ cross-buying intentions at their banks.

From this research, it was found that the perceived value and image of the bank were not influenced by collectivism. However, trust and satisfaction were highly driven by collectivism that eventually increased the customers’ cross-buying intention. In other words, customers in collectivistic cultures would appreciate trust and satisfaction with the bank rather than its perceived value or image. The perceived value and image are equally important key factors in customers’ buying intention. However, these factors are more effective in choosing the main bank or the first financial transaction with the bank, but not influential on cross-buying intention, which starts from the second financial transaction when the main bank has already been chosen by the customer. The authors, therefore, suggest the following managerial implications to the bancassurance operators in Korea and Taiwan, may also be relevant to other countries with similar levels of collectivism.

First, the banks should not extensively emphasise their perceived value to the customers as this may cause a negative impression, even deteriorate their cross-buying intentions. The banks should rather focus on creating a firm relationship with their customers that could eventually bind the customers’ secondary financial activities to take place in the same bank.

Secondly, the bank must establish trust and satisfaction prior to asking customers to cross-buy financial products. If a high level of trust leads to customers’ satisfaction, then it will sequentially create a stronger trust of the customer towards the bank. Therefore, the banks could increase communication and contact with existing customers, which will enable them to offer more bonding with the bank, and help customers recognise their relationship with the bank.

The banks should rather focus on creating a firm relationship with their customers that could eventually bind the customers’ secondary financial activities to take place in the same bank.
Lastly, the bank should build an image based on trust and customer’s satisfaction. For example, instead of branding the bank as the total financial services provider – a goal that focuses more on perceived value – it is recommended that the bank would be positioned as a trustful partner to the customers in wide range of products – focuses more on relationship building with the customers. At the same time, instead of directly advertising the perceived value of what the bank can offer to the customers, it would be more beneficial to indirectly communicate via customers’ testimonials or compliments relating to cross-buying financial products. This will be more effective to collectivistic customers as they are more inclined to listen and follow the associated group in terms of purchase behaviour.

Will this change? Will cultural values remain to be same?

Will cross-buying financial products in the banking sector, mostly referred as bancassurance, continue to grow in Korea and Taiwan? If the main drivers in bancassurance are trust and satisfaction of customers based on a strong level of collectivism, will these customers maintain the same level of collectivism? In other words, can their cultural values be changed in the future?

Hofstede’s studies, which are known as the most frequently used cultural values in cross-cultural research arenas, indicate that it is not possible. In these studies, it is explained that the symbols, heroes and rituals, which are subsumed under the term “practices” may change periodically. However, “values”, which are the broad tendencies of culture, may become stable over time.

For example, in this era of digitalisation, the banks compete on more innovative tools and distribution strategies to attract their customers. Internet banking and financial services through smartphones are not new to the younger generation in Korea and Taiwan. Some banks commercialise their image as a digital bank that most of its financial services, including cross-buying activities, can be executed online or via mobile phones. However, the practice of cross-buying financial products can be changed through these digitalised channels. Although, this does not mean that the value that customers appreciate in cross-buying financial products has been changed.

At an interview with one of the senior managers, who has been engaged in the bancassurance market in Korea from its inception, they pointed out that Korean customers have a tendency to blindly follow what their peers have purchased, and even feel obliged to do so as a part of the collectivistic etiquette. This is also reflected in bancassurance. They cross-buy the insurance policy from the bank without knowing the details on the product’s terms and conditions, and simply based on their trust towards their peers or the bank. In short, they purchase the financial products based on the cultural value they appreciate regardless of bank’s distribution strategy.

The practice of buying financial products will evolve as technology and marketing strategy continuously advance. However, the value in buying intentions will always rise from the customers’ collectivistic manner. As long as Taiwanese and Korean customers remain as the representatives of collectivistic customers, which can hardly be changed in the years to come, bancassurance will always have room for growth.


About the Authors

Dr. Jung Kee Hong is an active contributor and researcher in the field of international business and marketing. As a practitioner, he has produced various reports on customer behaviours and strategic positioning for multinational financial service companies, based on his 18 years experiences of working in the international financial services arena in New York, Seoul, Hong Kong, Taipei and Singapore.

You-il-Lee.photoDr. You-il Lee is Associate Professor of International Business in the School of Management and Deputy Director of the Australian Centre for Asian Business at the University of South Australia Business School. Professor Lee is a political economist, working on socio-economic and political changes and dynamics of globalisation/regional integration in Northeast Asia.


1. Collectivism refers to a society in which people from birth onwards are integrated into strong, cohesive in-groups that, throughout their lifetime, continue to protect them in exchange for unquestioning loyalty. Hofstede, G. & Hofstede, G. (1991) Cultures and Organizations. (New York: McGraw-Hill).

2. Hofstede, G. (1984) ‘Cultural dimensions in management and planning’ Asia Pacific Journal of Management 1(2), 81-99. Hofstede, G. (2001) ‘Culture’s consequences: Comparing values, behaviours, institutions, and organizations across nations’. (London: Sage). Hofstede, G. (2004) Geert Hofstede cultural dimensions. Retrieved on 19 November 2004. Hofstede, G. (2007) ‘Asian management in the 21st century‘. Asia Pacific Journal of Management 24(4): 411-420. Hofstede, G. H., Hofstede, G. J. & Minkov, M. (2010) ‘Cultures and organizations: software of the mind: intercultural cooperation and its importance for survival’. (New York: McGraw-Hill.)

3. Furrer, O., Liu, B. S. C. & Sudharshan, D. (2000) The relationships between culture and service quality perceptions: basis for cross-cultural market segmentation and resource allocation. Journal of Service Research 2(4): 355-371.

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