Online-only banks are new government push

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Online-only banks are new government push

The government announced a detailed plan to allow private companies to launch online-only banks in Korea, allowing them to hold up to a 50 percent stake.

The Financial Services Commission (FSC) announced Thursday regulations to launch the country’s first Internet-based banks by relaxing a current law that restricts a private company to a maximum 4 percent stake in such an entity under the rule of separation of banking and commerce.

Initial capital for the launch of such a bank will be 50 billion won ($45 million), lowered from the current 100 billion won under the Banking Act, according to the FSC. Overseas capital can also be invested in online-based banks.

Doh Kyu-sang, director general of the financial services bureau at the FSC, said at a briefing Thursday that the government encourages ICT firms or non-bank financial institutions to invest in the new kind of bank.

“We welcome the participation of non-bank institutions such as insurance companies or securities companies,” Doh said. “Although it would be difficult for many ICT firms to be a major shareholder holding a 50 percent stake considering their relatively small capital, they could possibly form a consortium to invest in such a bank together.”

Doh added that the government doesn’t welcome the participation of the major banks.

“The major banks are able to operate the same services with their current systems,” he said. “If they try to launch online-only banks as subsidiaries, it would defeat the purpose of the launch of such banks.”

As it will take time for the National Assembly to approve a revision to the Banking Act, the commission plans to approve one or two online banks under the current law first and then approve more after a revision is passed, hopefully by the first half of next year.

“Without revising the current law, we can still move forward with the launch of an online-based bank if a group of investors holds less than a 4 percent stake each,” an FSC official said by phone.

The new banks can do most of the jobs that the current banks are doing without human-to-human contact.

“Basically, what current banks are doing can be done by online-only banks, even opening an account, without checking identification through a face-to-face meeting,” said Jung Ji-won, standing commissioner of the FSC, at a luncheon with reporters Thursday. “Receiving deposits, issuing loans and credit cards, as well as selling insurance will all be possible, with the exception of some services that require face-to-face meetings, such as safe deposit boxes.”

By July, the commission will submit the revised version of the Banking Act for a vote by the legislature in September.

If the bill is passed and enacted, the commission will receive applications from any interested companies within six months.

For a detailed description of the new type of financial institution, the commission will hold a public presentation on July 22.

Since the first online-based bank opened in the United States in 1995, U.S. authorities have approved about 20 such banks so far. European countries have about 30 and Japan has eight. China has recently approved two Internet-based banks.

“Although the online banks can do the same job as the ordinary banks, they should differentiate their business portfolios to survive,” Jung said. “In overseas cases, we found most of the online-only banks that tried to attract customers with typical banking services such as low-rate loans were all failures.

“So they should attract a special group of customers, such as a subsidiary of a conglomerate or a small-

sized IT firm, building up partnerships with them to boost their business,” he said.

Statistically, the ratio of online banks in banking industries of various countries ranges from 1 to 3 percent, according to the FSC.

“The reason why we try to nurture online-only banks despite their small market share in the worldwide banking industry is to boost variety and competitiveness in the Korean banking sector,” Jung said.

To prevent a conglomerate from launching such a bank to use as “a private safe” of the owners, the commission will ban participation of any enterprise with capital of 5 trillion won or more.

There are currently 61 conglomerates including Samsung, Hyundai Motor and SK Group that have more than 5 trillion won in capital.

Limits will be imposed on major shareholders, prohibiting them from getting loans of more than 10 percent of their total investment in the bank. Currently, the legal borrowing ceiling on major shareholders of a bank in Korea is 25 percent.

FSC Chairman Yim Jong-yong said Thursday that he expects the online-banking industry to raise the competitiveness of the Korean banking industry as a whole.

One of the ICT companies that has shown interest in an online bank has been DaumKakao. Since the No. 2 web portal company and No. 1 SNS messenger developer merged in May, the company has been ramping up its financial services including Kakao Pay.

BY KIM HEE-JIN [kim.hejin@joongang.co.kr]

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