Scrap the regulation firstThe first around-the-clock Internet-only bank has begun service in Korea. K Bank is completely without a brick-and-mortar presence. Opening an account requires only a download of the app and submission of an electronic identification card. The receiver’s bank account details are required to transmit money. A phone number will do.
Customers can withdraw money by visiting the 10,000 GS25 convenient stores across the nation. They can also deposit or withdraw money simply by typing an account number and without the usual plastic card. The bank obviously can offer better rates than their brick-and-mortar counterparts.
The banking services sound great, but their sustainability remains questionable. K Bank was founded with an initial fund of 250 billion won ($224 million) from a consortium of technology and financial institutions, but much of it was spent on infrastructure and needs additional funding to extend to the bigger population with cheaper loans. But recapitalization is impossible because current banking law caps non-banking ownership at 10 percent. The law is kept to prevent chaebol ownership of banks.
But the law is outdated when the boundaries of banking and non-banking sectors have long been eliminated through the advance of technology. Fintech has become commonplace. There are more than 20 internet-only banks in the United States. Japan also runs online banking services and China has provided them since last year.
A bill proposing to revise the law to allow ICT companies up to 50 percent equity has been submitted to the National Assembly. If a bank cannot run smoothly due to lack of funds, there could be a bigger financial risk. Local banks’ competitiveness is worse than banks in Africa because their activities are restrained by too many regulations. The regulations on online banking should be the first to go.
JoongAng Ilbo, April 4, Page 30