Ten Cent Banking

 

China’s Internet giant Tencent is to jump into the domestic online-only bank business in earnest.

The company has decided to directly take part in shares of a Kakao bank consortium, which is led by Kakao and Korea Investment Holdings. With the participation of Chinese capital as the second largest shareholder, all eyes are on how it will affect the domestic Internet banking business. In particular, industry watchers are also paying attention to whether or not the Financial Services Commission (FSC) will approve the participation of foreign capital.

According to financial investment industry and information technology industry sources on Sept. 30, Tencent has joined the Kakao bank consortium and will file for preliminary permits of Internet-only banks on Oct. 1. Due to the separation of banking and commerce regulations, Tencent can only take a 10 percent stake in the consortium, the maximum stake currently allowed by law for a non-financial company, without voting rights.

Currently, Korea Investment, a local brokerage and asset manager, has a 50 percent stake in the Kakao bank consortium, while KB Kookmin Bank and Kakao have secured a 10 percent stake each. Tencent will own a 10 percent stake out of the remaining 30 percent, according to industry sources.

Industry watchers believe that Tencent took part in the consortium in order to cooperate in increasing the stake of Kakao. Kakao cannot secure more than 10 percent of shares on its own, but it can have effects owning the maximum stake of 20 percent or voting rights of 8 percent by making Tencent, the second largest stockholder, directly participate in the Kakao bank consortium. It means that Kakao can strengthen its leadership in the consortium. Tencent invested 72 billion won (US$60.94 million) in Kakao in Apr. 2012 and secured a 13.3 percent share.

For now, the participation of Tencent in the Kakao bank consortium is expected to make competition for the domestic online banks stronger.

Four consortia – the Kakao-KB Kookmin Bank-Korea Investment Holdings-led consortium, the KT-Woori Bank-led consortium, the Interpark-Industrial Bank of Korea-led consortium, and the 500V consortium composed of venture firms and small and medium companies – are to file for licenses. The financial authorities plan to select one or two preferred bidders. However, there will be variables, as the global giant Tencent is taking part in the process. When the FSC approves one or two web-only banks, they are allowed to start operations after they receive final approval in the first half of next year.

Industry sources expect that the Internet-only bank can expand its business areas to China in the future when the Kakao bank consortium is chosen, with the participation of Tencent. An official from the industry said, “Since Tencent is directly and indirectly pushing into the domestic financial market, our Internet banks will be able to inversely enter the Chinese market. It is still unclear whether the FSC would allow Chinese capital to tap into the domestic market, but the participation of Tencent is very meaningful in itself.”

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