Separation of Banking and Commerce
As the ruling and opposition parties agreed to pass a bill on internet-only banks this month, foreign information technology (IT) giants have emerged as a new variable in easing the separation of banking and commerce.
Some experts say that Korea may end up allowing foreign IT companies like Amazon and Alibaba to make a foray into the Korean internet banking industry while trying to prevent big Korean industrial companies from owning internet banks due to a concern that chaebol companies could use them as their private safes.
According to the National Assembly and financial institutions on August 12, some members on the Political Affairs Committee at the National Assembly requested the National Assembly Research Service to conduct a legal review of foreign companies’ acquisition of stakes in Korean internet banks.
"When the bill on internet-only banks is proposed at the general meeting of the Political Affairs Committee, this issue will be brought up, too," said an official of the National Assembly Research Service.
The ruling Democratic Party is focusing on how to prepare easing measures for big Korean IT companies under the leadership of its lawmaker Jung Jae-ho who took the initiative in submitting a bill on the Special Internet Bank Act. When the bill was submitted in 2016, lawmaker Jung limited industrial capital’s stake holdings of internet banks to 34% but excluded large business groups controlled by individual owners (large business groups with 10 trillion won or more in assets which are not allowed to have cross-shareholding structures). For this reason, the ruling party is examining a case to allow only ICT companies to become major shareholders even if such ICT companies have 10 trillion won or more in assets, considering the possibility of the growth of Kakao’s and Naver’s assets.
However, the ruling party is not discussing large foreign IT companies’ entering the Korean internet banking market. The large foreign IT companies include Tencent, Alibaba and Amazon. Korean financial authorities say that it is virtually impossible to include an explicit statement in the bill that discriminates against foreign capital. "Even if foreign industrial capital applies to become major shareholders of Korean internet banks, there will be no big problem because Korean financial authorities will check the appropriateness of their application," said an official of the Financial Supervisory Commission
Some experts say that foreign capital is already interested in the Korean internet banking industry, so it is highly likely that foreign capital will enter the Korean internet banking industry by becoming major shareholders of Korean internet banks in the future. Tencent, a Chinese IT giant operating WiBank in China, owns a 4% stake in Kakao Bank of Korea and Ant Financial, a subsidiary of Alibaba in China, invested US$200 million in Kakao Pay.
Many experts advise that Korea prepare for the possibility that big foreign capital will become owners of new Korean internet banks. This is because as Paypal of the United States established Paypal Bank in Luxembourg of Europe, deregulation has facilitated global IT companies’ entry into the Korean market. "Financial borders are gradually disappearing," said Oh Jeong-geun, a professor at the Financial IT Department at Konkuk University. "The internet banking business is an area where foreign capital can easily enter as fintech such as simple payment can mix well with the internet banking business.”
"If Korean financial authorities refuse to approve foreign capital's application for the internet banking business, the Korean government may face investor state dispute settlement (ISD) lawsuits," said Koh Dong-won, a professor at Sungkyunkwan University.