It is no exaggeration to say that this is Yu-Na Kim’s era right now. Yu-Na Kim won the Winter Olympics 2010 proving her nickname ‘the queen of figure skating,’ once more. Moreover, she proves her fame by rapid amplification of the market’s interest. Funds, installment savings and any other financial products putting up the name ‘Yu-Na’ are introduced in the market with high popularity. Among them, our team was interested in ‘Yu-Na Love Installment Savings’ the best. For that reason, this financial product has been most popular and successful product. Therefore, we visited KB bank’s Product Marketing Division which is located in Yeouido, the major financial center of Korea, to know what it is about.
What is ‘Yu-Na Love Installment Savings’ ?
‘Yu-Na Love Installment Savings’, one of the most popular exotic financial products in Korea, was issued in May, 2009. The interest rates of this financial product are linked with Yu-Na’s performance of competitions. It gives consumers 3.2% of base interest rate per year (in case of one-year maturity) and give 0.5% of margin rate if Yu-Na win a specified competition like ‘World Figure Skating Championships 2010’ held in Torino, Italy. This interest rate is little higher than those of plain installment savings. Moreover, the bank donates one-percent of total interest payment for the patients with intractable diseases. These characteristics made it more special.
Lee Hae-geum, head of the Deposit Product Sector, said that since May, 2009, more than $900,000,000 have been accumulated and the record is unprecedented in exotic financial products in Korea. However, Mr. Lee emphasized that the new product delivers intangible gains as well as tangible gains. Its contribution to advertising and improving corporate image will be enormous, he said.
Generally, financial products appeal to depositors with its quantifiable benefits like interest income. However, ‘Yu-Na Love Installment Savings’ attracted people with other special things. It presents to depositors entertainments that cheer for Yu-Na’s winning and get higher interest rate. In addition, it delivers depositors extra value that they do a good action supporting people in difficult situation. Strategies that breaking away from the traditional financial products and combining emotional factors into financial product made a great success of ‘Yu-Na love installment savings’
More about ‘Exotic Financial Product’
The exotic finance commodities have some different characteristics from others.
First, the goal of saving or investing behavior of consumers is something more than accumulating their wealth. The main goal of saving is raising funds to get something such as houses or cars and so on. But the developer of exotic finance commodities added more extra goals. These goals play an important role in meeting the consumers’ needs. Namely, consumers can get not only the increased wealth but also fun to participate in their interest fields. For example, the “Korean Citi Bank” developed “wonderful climbing” deposits. The initial deposit rate is 4.0% per year and this increases by each 0.1% up to 4.5% per year when the member takes a picture in the mountains whose height is more than 1000 meters. Thus this financial commodity is very popular to mountaineers and members can enjoy happiness by two times with climbing mountains.
Second, the extra finance commodities give more various ways to advertise. As we mentioned earlier, the main goal of saving is to accumulate wealth. The most advertisement method of banks was to raise their interest rates. But introducing extra finance commodities, the bank has another way to attract investors. Thus, the banks can raise their funds more effectively and efficiently. Let’s go back to the previous example. As we mentioned earlier, “wonderful climbing” deposits are very popular to mountaineers. Thus bank has two ways to advertise to those who climb mountains. In this way, bank can raise their funds more properly.
Third, the formula of these exotic finance commodities is more complicate than standard finance commodities. The banks’ main source of income is the spread between deposit and loan rate. Mostly, loan rate is floating rate and deposit rate is fixed rate. Thus, the source of banks’ risk comes from loan part and risk management focused more on this part. However, the interest rate of exotic finance commodities relates with human behavior or concern. Then, deposit rate is also floating rate and taking human into the consideration while developing new product results the banks’ risk of deposit part. So the developer should keep these increased risks from both parts in mind.
With various financial products, consumers have wide range of options. ‘Yu-Na Love Installment Savings’ was a fusion of financing and sport culture. Shinhan bank provides preference interest rates to those who participate in saving energy. Hana bank has sets special interest rates to those who lose a certain amount of weight and achieve their goals. These various kinds of financial products are very positive as it meets various consumer needs. It seems to show a new trend in finance market.
< Members of Deposit Product Sector in KB bank>