The seemingly successful launch of K bank, the nation’s first internet-only bank and the seventh first-tier commercial bank, should be hailed for several good reasons.
First, it is good for financial consumers -- many of whom are going through economic difficulties due to an extended slump -- to have a bank that offers higher interest rates for depositors and lower rates for borrowers.
It should also be noted that the bank offers loans to those with relatively low credit ratings who would not be able to borrow from traditional first-tier banks.
The second good aspect of the internet bank is it will boost competition in the nation’s stagnant financial sector. K bank is the first commercial bank licensed by the government since 1992. The financial sector is now dominated by six banks after a radical restructuring of the financial sector through the 1997-98 Asian financial crisis and the 2008 global crisis
Despite its steady expansion and development, the nation’s financial sector still lags behind the overall standard of the Korean economy. Statistics from the World Economic Forum showed that Korea’s overall global competiveness ranked 26th among 138 countries surveyed last year, but its financial market maturity ranking stood at 80th.
Korea definitely needs global financial players who can be on par with firms such as Samsung in electronics and Hyundai in the auto industry. New players like K bank should provide impetus for competition and innovation.
The web-only bank, which will have no brick-and-mortar branches and will open around the clock, should set off a new round of competition among commercial banks, which have often come under criticism that they rely too much on earnings based on net interest margins and traditional ways of banking.
All the six commercial banks, which have already invested heavily in online and mobile banking services, are stepping up their endeavors in anticipation of the challenges to come from K bank and Kakao Bank, another internet-only bank that will start in the first half of this year.
This calls on the internet-only banks to create new markets and provide differentiated products and customer services. K bank’s plan to use big data, artificial intelligence and other components of the fourth industrial revolution is well-advised.
Whatever industry you are in, you cannot pursue real innovation without bona fide deregulation, and this is true of the financial sector and more specifically in internet-only banking. Indeed, Korea’s notorious regulatory barriers should be blamed for the relatively late coming of internet-only banking.
One of the remaining barriers blocking the way of K bank and Kakao Bank is the Banking Act that bars nonfinancial firms from possessing a stake of more than 4 percent -- in the case of shares with voting rights -- in a bank. As a result of this regulation, KT, the telecom giant that leads the shareholders consortium of K bank with an 8 percent stake, can exercise voting rights for only half of them.
The act also stands in the way of stakeholders and potential investors who wish to participate in the consortium, which would certainly need to increase its capital in line with growth of its business.
The 4 percent equity ratio limit rule is aimed at prohibiting industrial powers like chaebol from controlling financial firms. It is silly to apply the same rule to financial technology startups like internet-only banks.
The National Assembly is primarily to blame for the regulatory deadlock as it has been sitting on two revision bills to the Banking Act and three special legislation bills designed to address the red tape in the internet-only banking sector.
It should act quickly, for the benefit of financial consumers and competitiveness of the fintech sector, and more broadly the financial sector.