Kakao, KT approved to start Internet bank

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Kakao, KT approved to start Internet bank

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Consortiums led by Kakao Corp., the operator of the country’s No. 1 smartphone messaging platform, and KT Corp., the nation’s second-largest mobile carrier, were awarded preliminary licenses Sunday to start web-based banking services, the Financial Services Commission (FSC) said.

The Internet bank will engage in the same business as commercial banks, including processing deposits, loans and wiring money. Consumers will no longer need to visit brick-and-mortar bank branches to open new bank accounts or get loans.

The two consortiums are scheduled to deliver public presentations on their business plans today at the Korea Federation of Banks headquarters in central Seoul.

They will apply for final approval after acquiring sufficient manpower and facilities. Once approved, they would be able to open the banks in six months.

The Kakao-led consortium plans to launch the Korea Kakao Bank with initial funds of 300 billion won ($260 million). The largest shareholder, Korea Investment Holdings, has a 50 percent stake. Kakao and KB Kookmin Bank hold 10 percent each.

“Their business plan based on KakaoTalk is considered innovative, and they are going to attract customers relatively easily, based on KakaoTalk users, which will allow the consortium to operate stably,” the external review committee that assessed the consortiums said in a statement.

Kakao and its 10 partners submitted its business plan, describing lending services with interest rates around 10 percent, simple remittance service using KakaoTalk, a payment service with no need for a credit card, a value-added network or payment gateway, an asset management service and a point-accumulation service usable across all Kakao services.

It has also emphasized “simple and easy financial services via everyday messenger.”

“Kakao Bank will introduce a variety of innovative financial services that couldn’t be possible at offline commercial banks,” said Lee Yong-woo, an executive at Korea Investment Holdings.

Kakao Bank’s main rival, K-Bank, is in the planning stages by the KT consortium and has 250 billion won in capital.

The FSC also approved KT and its 20 partners, judging that the consortium would be able to reach a large number of customers.

The bank’s major shareholders are also large players. Woori Bank, GS Retail, Hanwha Life Insurance and Danal all have a 10 percent stake each in the new bank. KT holds 8 percent.

The consortium has highlighted that it possesses a vast range of big data for about 200 million customers, including information regarding 26 million credit card payments offered by BC Card, a history of mobile phone bills by KT from 30 million people.

It also plans to capitalize on GS 25 convenience stores, KT’s payphone booths and Woori Bank’s ATMs.

The K-Bank plans to offer 10-percent loans, simple payment service, mobile phone and email-based remittance service and asset management service.

“K-Bank will prepare services that can help small merchants start new businesses and expand benefits of financial services to those who have been marginalized,” said Kim In-hoe, senior vice president of KT who is in charge of the bank consortium.

Another, led by the online shopping company Interpark, formed with nine partners - SK Telecom, Industrial Bank of Korea (IBK), NH Investment and Securities, Hyundai Marine & Fire Insurance, Welcome Savings Bank, NHN Entertainment, GS Homeshopping, BGF Retail and Yello Financial Group - failed to gain approval from the FSC.

The commission said the Interpark-led I-Bank plans to focus on lending service customized for small online merchants, which carries high risks for creating bad debt.

This is the first time in more than two decades that any new business entity has been allowed to enter the nation’s banking industry. Peace Bank of Korea, formerly Woori Bank, was the last to be allowed to operate in the banking sector in 1992.

For the Korean financial industry, the regulator’s approval carries significance now that it will begin opening the industry, which has reached its limit in terms of growth, to other sectors for convergence, especially the IT sector.

For local IT businesses, the banking industry is now a blue ocean in which they can develop financial services based on cutting-edge technology and social networking functions that can make financial transactions easier and simpler on online and mobile platforms.

“The purpose of introducing Internet banks isn’t just to create another type of bank,” said Lee Yoon-soo, the director for banking industry at the FSC. “It is to merge two different industries in order to produce innovative services with the goal of boosting the competitiveness of the entire financial industry.”

FSC Chairman Yim Jong-yong has been a strong advocate for the web-based bank, saying he expects the online-banking industry to raise the competitiveness of the Korean banking industry as a whole.

But with approval of the new banking business, controversy over eliminating the separation between banking and commerce is expected.

There is currently a pending bill in the National Assembly to ease that regulation, which aims to expand non-financial companies’ stake in a web-based bank from the current 4 percent to 50 percent. It also aims to reduce the minimum capital a business must have to start the banking service, from 100 billion won to 25 billion won, which would allow more players.

The FSC believes the bill should pass before the Internet bank is officially approved. If passed, the financial regulator will approve more IT businesses to launch Internet banks.

Opposition lawmakers, however, have criticized the bill, saying that the measure could be misused by non-financial companies in the reckless expansion of their businesses to make unfair profits.

For example, if a non-financial company owns a banking subsidiary, it could issue loans only for favorable business partners at lower rates and possibly avoid lending to competitors.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]
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