South Korea's virtual banking market

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Regulation

The Financial Services Commission (FSC) under the ‘Banking Act’ grants a preliminary license to operate ‘Internet-only’ banks in South Korea. FSC grants virtual bank license on three significant grounds:

  1. Innovativeness: To create a new wave of competition in the banking sector
  2. Inclusiveness: To help financial customers enjoy numerous benefits such as banking at lower transaction cost, convenient banking services, ease of access to loans
  3. Stability: To promote the creation of jobs in IT, banking, and fintech domains.

The primary benefit is that non-banking financial companies (NBFCs) can hold up to 34% stake in the virtual bank.  

“The traditional banks are Goliath; we are David. We need to avoid competition and focus on areas where we are strong and where the traditional banks are weak.” – Yan Lee, Kakao Bank

The FSC, South Korea has granted two virtual banking licenses, while promoting additional players through a preliminary license.  

Current scenario

K bank is the first virtual bank of South Korea; it received the virtual banking license on 14th December 2016, starting the operations in 2017 with a start-up capital of $US 223 million. A consortium between KT (telecom company), Woori bank, Ant financial (financial arm of Alibaba), Smilegate (video game developer), Posco (steel maker), and the national tourism federation.

Kakao Bank is part of the country’s highly popular messaging platform Kakao Talk. It is a consortium between Kakao, KB Kookmin Bank (local lender), eBay, and Tencent Holding. The bank targets urban employees from the 30-to-50-year-old segment. It has reported a profit of $US 5.54 million – 18 months after launching.

An upcoming virtual bank

Toss is a South Korea-based mobile financial service platform operated by fintech start-up Viva Republica Co Ltd. It received the preliminary license of operating as a virtual bank on 16th December 2019. According to the press release by FSC, ‘Toss Bank’ will begin its operation within 6 months of getting final approval from FSC.

Topic:

The Future of Banking

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