Kakao Bank, the second internet-only bank in Korea, will officially open its service to the public on July 27. With an exceptional remittance charge, the bank is expected to change the landscape of the overseas remittance market worth 10 trillion won (US$8.96 billion) a year which has been dominated by local banks.
Kakao Bank said on the 23th, “We will introduce an international money transfer service which offers a tenth of transfer fees charged by the banks, waving telegram, brokerage and remittance charges.
Kakao Bank has put most efforts into launching the overseas remittance service. Until now, banks allow to customers to make international money transfers through the SWIFT payment network. When customers deposit money into local banks, the money is sent to receiving banks through intermediary banks. In this process, customers are required to pay telegram, brokerage and remittance fees charged by foreign and intermediary banks as well as remittance fees charged by local banks.
Remittance fees vary depending on banks and amount of remittance. However, customers are usually charged with 5,000 won (US$4.48) for less than US$500 (557,950 won), 10,000 won (US$8.96) for up to US$2,000 (2.23 million won), 15,000 won (US$13.44) for US$5,000 (5.58 million won) and 20,000 won (US$17.92) for over US$5,000 (5.58 million won). According to Kakao Bank, customers at the bank tentatively named A need to pay a total of 54,960 won (US$49.26) of fees – 10,000 won (US$8.96) for remittance fees, 8,000 won (US$7.17) for telegram fees, 20,160 won (US$18.07) for fees charged by intermediary banks and 16,800 won (US$15.06) for remittance fees – when they want to transfers US$5,000 (5.58 million won) overseas.
On the other hand, they need to pay only 5,000 won (US$4.48) when using Kakao Bank. Since Kakao Bank is directly connected with local financial companies, simplifying payment networks, it has eliminated telegram, brokerage and remittance charges. Customers will be only charged with 5,000 won (US$4.48) and 10,000 won (US$8.96) when they transfer US$5,000 (5.58 million won) and over. To this end, Kakao Bank plans to establish partnerships with U.S.-based Citigroup, which has global networks, and use its payment systems. However, customers will be charged with 8,000 won (US$7.17) when they want to transfer money to Japan, Thailand and the Philippines regardless of the amount of remittance and the remittance service will be limited to 22 countries around the world for now, according to Kakao Bank.
Until now, families of students who study abroad and companies which has overseas subsidiaries have been able to designate their main foreign exchange banks in order to continuously make international money transfers after vising the banks and submitting documents in person. However, Kakao Bank allows them to simply do so through the app.
Accordingly, there is a growing tension among banks. With the revised foreign exchange transactions act which has taken effect from the 18th, customers can now transfer US$3,000 (3.35 million won) at a time and up to U$20,000 (22.31 million won) a year overseas through fintech companies as well. So, there are more competitors in the market.
Joo Hae-won, a researcher at the International Finance Center, said, “Despite higher fees, customers will use commercial banks to make international money transfers for safety until they gain trust for Kakao Bank. However, the structure of overseas remittance market will change in the long term.”