K bank raises deposit rate to beat competition

K bank, Korea’s first internet-only bank, has introduced a new fixed-term deposit account with an increased interest rate, the highest in Korea, in an apparent attempt to compete with industry rival Kakao Bank.

K bank offered a new fixed-term deposit account with one-year maturity on Wednesday, the tenth of its kind since the bank opened in April. The funding goal for the account released on Wednesday is 30 billion won ($26.4 million). While the bank has given a maximum rate of 2.0 percent on similar products before, it raised the max rate to 2.1 percent this time around.

This is the latest bid by K bank to gain ground in the banking industry, especially following the recent success of Kakao Bank.

The 2.1 percent return on a one-year deposit is higher than that of Kakao Bank, which offers 2.0 percent on a similar product. This is also much higher than the average rate offered by commercial banks in Korea. According to data from the Korea Federation of Banks, the average interest rate on one-year fixed-term deposit account at traditional banks is below 1.5 percent. Both K bank and Kakao Bank are mobile-exclusive and do not have brick-and-mortar branches.

K bank, as of the first week of August, has some 440,000 subscribers in total. In comparison, Kakao Bank’s subscribers exceeded 2 million as of Tuesday, nearly five times more than K bank. The total amount of deposits with K bank stands at around 710 billion won and total loans at around 630 billion won, according to a spokesperson from the bank. Kakao Bank, which launched on July 27, has out-paced its rival, having received 917 billion won in deposits and issued 758 billion won in loans.

Raising interest rates on deposits, however, may not be enough to give K bank a competitive edge. Some experts have argued that the internet-only bank is also let down by its mobile app.

“[Compared to K bank,] Kakao Bank has the upper hand in terms of platform [due to its connection to Kakao Talk] as well as design and convenience,” explained Jeon Bae-seung, an analyst at eBest Investment Securities.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]