Online banks face gov’t hurdlesKorea’s new internet banks are running into obstacles as they strive to gain ground in a market that has seen no newcomers in over two decades.
One of those obstacles is a government rule that prohibits customers from opening more than one account in a span of 20 days, even if the second account is at another bank.
The regulation has posed problems for the country’s two online banks, Kakao Bank and K bank, which opened within three months of each other and are still competing fiercely for new customers.
Kakao Bank’s explosively successful launch in late July, three months after K bank’s debut, drew many people to the bank to see what the fuss was all about. One of those people was Mr. Lee, an office worker from Gimpo, Gyeonggi, who opened an account on Kakao Bank on Aug. 4.
But four days later, he discovered that rival K bank was offering a 2.1 percent return to open a new account. It was the best deposit rate among any bank in Korea, so he decided to pull the bulk of his money out of Kakao Bank.
The only problem was he couldn’t create a new account at K bank. After going through the preliminary process, he received a message that said he couldn’t open a new account until Sept. 4, as per the 20-day rule.
In the meantime, K bank successfully brought in 30 billion won ($26.3 million) from the accounts and closed the promotion, and Lee was robbed of his chance to get the best rate in the market.
“There are some customers who became interested in internet banks after using Kakao Bank,” a spokesperson from K bank said. “Some of them wanted to open accounts with us but called our customer service inquiring why they were barred from doing so.”
The spokesperson said all K bank customer service representatives could tell customers was to wait 20 days.
Potential customers like Lee are prohibited from making accounts back to back because of a guideline established by the Financial Supervisory Service, Korea’s financial watchdog. The guideline stipulates that if a person tries to open more than one bank account within 20 business days, the institution must verify the purpose of the account, a measure to prevent the creation of a fake account. Some people in Korea create fake accounts using someone else’s name and personal information, often for use in criminal activities.
The policy applies to all banks, whether commercial, savings or online only, but banks with brick-and-mortar branches have an easier time around the guideline because they can screen additional documents in person. Internet banks like Kakao Bank and K bank don’t have that luxury. Government officials say the onus is on banks to find new ways to adhere to the Financial Supervisory Service’s guidelines.
“This policy is necessary to prevent criminals from using, as well as selling and buying, fake accounts,” a source at the agency. “But banks can bypass it via different channels such as verifying through video calls to relieve consumers from inconvenience.”
BY CHOI HYUNG-JO, HAN AE-RAN [firstname.lastname@example.org]