Fintech Frenzy
It is being forecast that preliminary approval will be given to one or two Internet bank consortia this year, although Lim Jong-ryong, the chairman of the Financial Supervisory Commission, said that he would flexibly think about it on Sept. 13. Four consortia have expressed their desires to take part in preliminary approval of Internet banks. One of them has not been concrete about their official plan. It is expected that it will be difficult for all applicants to receive preliminary approval, since the system is not a registration system.
Financial regulators will give preliminary approval to one or two consortia this year. This is because Internet banks need stronger safety due to the characteristics of the financial business. More consortia are expected to receive approval after a revision of the Banking Act.
“When the Banking Act is revised, the scope of partner selection will expand with the participation of more businesses such as IT companies,” a financial expert said. “Then applying for approval next year will bring more advantages to consortia.”
Four Consortia
First of all, the Kakao Bank Consortium is expected to publicize its strong domestic platform as its biggest weapon. Kakao says that it is able to offer optimized services such as mobile crowd funding or P2P loans based largely on customers that Kakao Talk has secured. Kakao Talk is enjoying an 80 percent share in the mobile messenger market. Of late, Kakao has been expanding its functions to apartment management expenses, utility bills, and water bills through its mobile platform. In addition, Kakao will be able to create huge synergies with Korea Investment Holdings and KB Kookmin Bank. Korea Investment Holdings is a stock industry market leader, and KB Kookmin Bank is a retail banking specialist.
The KT Consortium led by KT will include Woori Bank and Kyobo Life. But it is not clear whether or not Kyobo will stay with them. Industry experts say that the greatest strength of KT is the data that it has on about 18 million subscribers of its wireless mobile service and 26 million members of BC Card, one of its subsidiaries.
NH Investment & Securities, SK Telecom, the Industrial Bank of Korea, NHN Entertainment, Yellow Financial Group, Welcome Savings Bank, and GS Home Shopping are taking part in the Interpark Consortium led by Interpark. This group features a commerce-type platform service that covers overall life matters based on their experiences and technological prowess in e-commerce. The consortium can make the most of synergies with SK Telecom, with a market share of 50 percent in the mobile telecommunications market. It is likely that this consortium will capitalize on the promotion of finance for ordinary people such as small loans for SK Telecom users. The Industrial Bank of Korea has high expectations for collaboration with Interpark, since the bank aims to create a middle interest rate loan market for small business owners. Interpark is developing business models for small business owners.
The 500V Consortium is based on an alliance between 500V, a venture start-up and the Korean Federation of Small and Medium Business (KBIZ). The consortium is developing services based on its rich experiences in the fintech industry.
Minimum Requirements
The FSC is also brooding over the minimum necessary capital for an Internet bank. According to the FSC, the requirements could be 100 billion won (US$85 million), 50 billion won (US$42 million), or 25 billion won (US$21 million). According to current Korean Banking Law, 100 billion won is the minimum requirement for a Seoul-based commercial bank, while 25 billion won is the minimum requirement for a regional bank.
Companies have had mixed reactions to the minimum capital possibility. Non-financial companies, including ICT firms, insist that minimum capital not be a barrier against companies that want to found an Internet bank. “Banking and industry separation regulations are precluding large companies from taking part in Internet bank consortia,” said an industry watcher. “Under these circumstances, minimum capital should not be used as a barrier.” Minimum capital should be about 25 billion won as set in a revision of the Banking Law brought before the National Assembly in July, he said. “In overseas countries, minimum capital is not set as a barrier,” he added.
The U.S. has no regulations, and in Japan, the minimum necessary capital is about 25 billion won. But the financial industry calls for higher minimum capital. They say that minimum capital should be scaled up, since it is a buffer for banks to safely play roles.
On the other hand, controversies are brewing over banking and industry separation regulations. “We will strictly apply the banking and industry separation principle to Internet banks,” said Lim Jong-ryong, chairman of the FSC during a parliamentary inspection of the administration on Sept. 14. The current Banking Law allows industrial capital to own only four percent equity in a bank. Some experts argue that this policy is against the purpose of establishing an Internet bank.
Even if an IT company draws up an innovative business plan that can offer benefits to consumers and work in the global financial market based on its mobile platform and networks among numerous customers, the current banking industry structure will not allow the company to set up an Internet bank. A recent report from the Korea Information Strategy Development Institute (KISDI) says that even if regulations are eased for a non-financial company that intends to establish an Internet bank, not all industrial capital can engage in the banking business.
“Financial regulators can prevent industrial capital from making a foray into the Internet banking business by strictly checking other approval conditions, as well as the corporate governance structure of the bank,” a KISDI research fellow said. Even if a non-financial company is allowed to do the Internet banking business, the government can promote the stability and development of the financial market through post-approval control methods such as enjoining various duties, he added.