Korea will ease regulations and revise rules to help the country's first internet-only banks make a soft landing and grow down the road, its financial regulator said Wednesday.
Among the necessary steps to propel the growth of Kbank and Kakaobank, the Financial Services Commission picked an immediate revision to the existing banking laws to allow information-technology companies, as the largest shareholders, to participate in the web-only banks' management decisions as the most urgent measure to be taken.
"To differentiate themselves from existing banks in terms of products and services, the online-only banks badly need to work with IT companies from the outset of their businesses," FSC Chairman Yim Jong-yong said in a press briefing held during his visit to Kakaobank's headquarters in Pangyo, just south of Seoul.
For that aim, the banking laws should be revised to allow an IT company with a minimum capital of 25 billion won to take a controlling stake of less than 50 percent in an internet-only bank and have a say in the bank's business decisions as is the case in advanced countries, the chairman said.
In collaboration with related parties, the financial regulator will make bigger efforts to help pass the proposed revision submitted by Rep. Kang Seok-jin from the ruling Saenuri party to the banking laws this year, he said.
In other steps to create a business environment for internet-only banks, the government revised rules in January to allow them to have credit card businesses as well, even if they don't have more than 30 outlets or hire more than 300 workers, Yim said.
Under the changes, "if internet-only banks are fully ready to run credit card, insurance and financial investment businesses in terms of staff and systems, they can directly apply for final approval to have multiple businesses without the process for an initial approval," the FSC chief said.
Moreover, the government plans to have the Korea Credit Information Services provide customers' credit information at microfinancing companies to web-only banks. It is to allow the new banks to extend mid-rate loans with an interest rate of around 10 percent to low-rate customers, he said.
Currently, microfinancers can charge an interest rate of up to 27.9 percent for loans extended to low-credit customers who are denied access to bank loans with a rate of less than 10 percent these days. The country's key rate stands at an all-time low of 1.25 percent.
To ensure stability in computing systems, "Even before a final go-ahead, we will help the online banks test their systems in connection with KCREDIT, the Bank of Korea and the Korea Financial Telecommunications & Clearings Institute. Multiple tests will guarantee the banks start their businesses with a relatively stabilized system," the chairman said.
But Yim didn't paint only a rosy picture for the future of internet-only banks. "Their mid- and long-term competitiveness depends on whether they can offer 'killer content' that didn't exist before in the banking industry,” he said.
Meanwhile, Kbank, led by mobile services operator KT Corp., and Kakaobank, controlled by Korea Investment Holdings Co., are wrapping up preparations to obtain final approval from the Financial Services Commission in the third and fourth quarter, respectively, with an aim to begin operations within this year, the banks said.
The final approval will bring newcomers to the fourth-largest Asian economy's banking scene for the first time in 23 years.
In November, the government granted preliminary permits to the two web-only banks as it seeks to reinvigorate the banking sector suffering from slow growth and slim margins. It expects online-only banks will be able to offer not only traditional financial services but also fintech-based innovative services that existing commercial banks can't offer through mobile platforms.
Under financial technology (fintech), partnerships, banks and information-technology companies cooperate for business synergy.
Yim has said, "Establishing internet-only banks should stir healthy competition in the stagnant local financial market amid a slowing economy and record low interest rates."
No doubt, the internet and mobile banking sector has emerged as a new economic growth driver in recent years in one of the world's most wired countries as consumers increasingly prefer convenient deals on mobile devices to visiting offline branches.
Threatened by the planned launch of internet-only banks, existing ones have bolstered their mobile banking services in order not to lose customers. The FSC chief called the banks' move "positive signs of sound competition and tension in the making" in the markets.
Korea Federation of Banks Chairman Ha Young-ku, former chief of Citibank Korea, said the launch of the web-only banks will stimulate the banking sector to innovate themselves and reemerge with competitiveness.
He asked Kakaobank and Kbank to become leading players in providing financial services to low-credit customers based on a thorough analysis on credit data and an effective cost management.
"Domestic banks have sought for a presence in overseas markets but with no tangible results yet. The two web-only banks are better positioned as it takes much less workforce and facility investment to open a business overseas," Ahn Dong-hyun, president of the Korea Capital Market Institute President, said.(Yonhap)
