Two consortiums, one led by South Korean Internet giant Daum Kakao and the other by second-largest telecom operator KT, have won a preliminary license to launch South Korea's first online-only banks next year.
The country's top financial regulator, the Financial Services Commission (FSC), said Sunday that Kakao Bank, led by Daum Kakao and Korea Investment Holdings, and K Bank, led by KT and Woori Bank, have been selected for the government’s pilot program. However, the I-Bank consortium led by online retailer Interpark Corp. has become the only bidder that failed to obtain a preliminary license among the three.
According to the FSC, Kakao’s Kakao Bank gained high scores for innovative services based on its immensely popular mobile messaging platform KakaoTalk with 40 million users. Under the motto ‘Mobile Bank in Your Hand,’ Kakao has been vigorously pushing for its web-only bank business.
Under the government’s pilot program, Kakao Bank will offer varied financial services including remittance, asset management services and a simple payment service that does not necessitate credit cards, VAN or payment gates. Kakao Bank has 11 major shareholders. Korea Investment Holdings has a 50 percent stake in Kakao Bank, Kakao 10 percent and Kookmin Bank 10 percent.
KT’s K Bank also scored highly on customer service accessibility as it had presented a plan to transform its 70,000 public telephone booths into ATMs.
KT’s K Bank plans to furnish unique services including total payment service Express Pay, remittance based on mobile phones and email and asset management services using robo-advisors. Woori Bank (10%), GS Retail (10%) Hanwha Life Insurance (10 %) and Danal (10%) and KT (8%) are among 19 major shareholders of K Bank.
Internet-only banks are web-only, ‘storeless’ banks. Online-only banks allow customers to open an account, apply for a loan and use various other banking services online, so they save customers the trip to a bank. What’s more, since web-only banks can cut down on fixed costs, such as personnel expenses and monthly rents, they can offer relatively lower interest rates (in the 10 percent range) on personal loans and thus can tap into a new source of revenue.
“This novel financial service leveraging the convergence of ICTs and finance is expected to revitalize the supply of mid-rate loans to small businesses. Internet-only banks have to employ necessary personnel and set up organizations and computing facilities and apply for a formal license before actually doing business,” the FSC said.
Though whether the two banks can kick off their business depends on their plans, the country will see the emergence of the first two Internet-only banks as early as the first half of next year if the two banks start doing business within 6 months after getting the go-ahead from the FSC. As regards relevant law revisions, the FSC, however, said: “It’s up to the National Assembly. We are not in a position to predict when things will happen.”
Still there are many hurdles ahead. Though the FSC has announced that it would break with the government’s strict policy of separating banking and commerce and raise the limit on industrial capital’s ownership of banks, a bill to revise the Bank Law has been languishing at the National Assembly. Thus, the bill is unlikely to be passed into law this year.
According to a survey done by the Citizens’ Coalition for Economic Justice (CCEJ), 71 percent were negative about easing the policy of separating banking and commerce for the introduction of Internet-only banks.
Besides, since an unprecedented, new market is being opened, there is no guarantee on the value of running a web-only bank.
Moreover, though ICT giants like Kakao and KT are now projected to lead the online-only banks, major shareholders are financial companies so in case unexpected financial incidents occur, it would be tricky to figure out who is most responsible for them.
On top of that, there is a high chance of security problems coming to a head when the volume of online transactions balloon. Thus, experts warn against the government spearheading the web-only bank scheme, saying that developed nations do not take the lead in developing the fintech sector for fear of security breaches.
