Internet Monies
On June 18, the Korean government announced its plan for the revitalization of the fintech industry, including the introduction of Internet-primary banks.
According to the plan, an Internet-primary bank’s minimum required capital is 50 billion won (US$45 million), half of that of a general commercial bank, and Internet-primary banks are not subject to business conduct regulations. In addition, an industrial capital company is allowed to own up to 50 percent of an Internet-primary bank, not 30 percent as previously planned, so that ICT companies, game companies, and e-commerce firms can have easier access to the fintech market. This reflects Financial Services Commission (FSC) Chairman Yim Jong-yong’s strong will to grow the market, even at the sacrifice of bank-industrial capital separation.
One of the remaining variables is the passage of the Bank Act amendment through the National Assembly. In view of it, the FSC excluded conglomerates, which are subject to cross-shareholding restrictions according to the Fair Trade Act, from the clauses for the relaxation of bank-industrial capital separation. But nothing can be said for sure for now concerning the passage of the bill. “We are going to open the doors allowed to be opened first, rather than sticking to the revision of the law,” a FSC representative explained, adding, “The revision will be able to pick up some speed if public opinion is in favor of Internet-primary banks, the first one of which is expected to show up before the end of this year.”
Korea is a second mover when it comes to the fintech industry. It failed to introduce an Internet-primary bank in 2002 and 2008. This was because of the domestic financial institutions trying to maintain their vested interests, excessive regulations and the Bank Act stipulating that an industrial capital cannot own more than 4 percent of a bank. Things are expected to be different at this time, though, with the convergence between finance and IT having already become a global trend.
The key part of the plan is market growth based on deregulation. According to it, Internet-primary banks’ scope of business can cover business loans, credit cards, bancassurance, derivatives brokerage, bill acceptance, and many more, so that each can find its specialty through experience. Not Basel III but Basel I is applied during the early stage of establishment for less prudential regulation, and IT companies’ computing facilities can be used by the banks as well.
The financial authorities are planning to grant the first approval to consortia of financial and fintech companies, which have nothing to do with the revision of the Bank Act. Then the banks can start their businesses this year. The authorities recently disclosed its evaluation criteria, including unique business models, contribution to the development of the industry, and the likelihood of overseas businesses. “Banks are not desirable,” said Do Kyu-sang, head of the Financial Service Bureau of the FSC, implying that the agency was paying more attention to consortia of IT firms and non-banking players than those where banks are the largest shareholders. This seems to be based on its determination that the latter is less innovative. In the non-banking sector, Kyobo Securities, OK Savings Bank, multiple securities companies, and the like are said to be interested in Internet-primary banking.
The application for preliminary approval is scheduled to start in Sept. Interpark, Naver, and Daum Kakao, which are already running tasks for new businesses, are predicted to move, while monitoring how the Bank Act is handled. Naver is currently maintaining a neutral stance.
In the meantime, telecoms operators and distributors associated with conglomerates with total assets of at least 5 trillion won (US$4.5 billion), such as SK Telecom, KT, Homeplus, and Emart, have lost their opportunity to participate in Internet-primary banking, although some of them still have a chance to persuade lawmakers.