The First Shovel Has Been Dug... Financial Holding Companies Face 'Rough Road' Ahead in Establishing Internet Banks (Comprehensive)

Financial Services Commission Focuses on Toss Bank Approval... "No Progress or Plans for Discussion"
Second Half Banking Competition Evaluation Likely to Be First Hurdle
Challenges Include Internal Financial Groups and Political Opposition

[Asia Economy Reporter Kim Jin-ho] Major domestic financial holding companies have taken the first step toward establishing internet-only banks, but rough roads lie ahead. They submitted a statement arguing that "competition is needed in internet finance as well," but financial authorities have decided not to review it for the time being. Even if discussions on establishment begin in the future, there are many hurdles to overcome, from internal opposition within financial holding affiliates to persuading the political circles.

On the 21st, a senior official from the Financial Services Commission said, "At present, there is no progress or plan regarding financial holding companies' push to establish internet banks," adding, "This issue is something to be observed over time."

The reason financial authorities have not taken any stance on financial holding companies' efforts to establish internet banks lies in the upcoming bank competition evaluation scheduled for July. The bank competition evaluation is a procedure that reviews the overall banking industry and licensing policies. The results serve as a policy basis for financial authorities to determine whether additional internet bank licenses are necessary. If the evaluation concludes that "new entrants are needed," discussions on establishing internet banks by financial holding companies could gain momentum; however, if the opinion is that "there are already enough," the matter is likely to be shelved.

Another background factor is that the licensing of the third internet bank, Toss Bank, is a priority. Toss Bank is currently awaiting final approval from the Financial Services Commission, aiming to launch in July. A financial authority official stated, "Since Toss Bank's licensing is being prioritized, there is no capacity to review the establishment of internet banks by financial holding companies at the moment," adding, "Discussions are expected to take place only after Toss Bank's launch is completed and the bank competition evaluation results come out later this year."

Challenges to Overcome: Political Opposition and Internal Resistance

Even if establishment discussions intensify based on the competition evaluation results, many obstacles remain. Internal opposition within financial holding affiliates is a prime example. In particular, the financial labor union is concerned that the entry of financial holding companies into internet banking will accelerate the closure of offline branches, creating employment insecurity. They argue that since existing banks already implement all functions of internet banks, dualizing the organization could have adverse effects. A financial industry insider said, "If internet banks are promoted, manpower and resources will be concentrated there, which would effectively divide the organization into first and second teams, potentially causing relative deprivation among members."

Political opposition is also expected to be strong. There are already strong criticisms that power is concentrated in financial holding companies, and it is anticipated that they will not tolerate the approval of internet bank establishments. A financial holding company official said, "If financial authorities allow it, there is no reason to refuse," but added, "However, since the purpose of the Internet Bank Special Act is focused on the entry of non-financial major shareholders into innovative finance, there is a strong view that the political circles will challenge the 'justification' and eventually block it."

Existing internet banks have viewed the push by financial holding companies to establish internet banks positively in terms of expanding the industry's scale but remain cautious as there is no concrete substance yet. An internet bank official said, "If financial holding companies establish internet banks, it will further strengthen the mobile trend," but added, "Since there are no specific business plans yet, it is uncertain what changes will occur."

Meanwhile, on the 11th, the Korea Federation of Banks held a meeting of strategic department heads from major commercial banks and conveyed the holding companies' intention to establish internet banks to the Financial Services Commission. The statement reportedly included the positions of eight financial holding companies (KB, Shinhan, Hana, Woori, NH Nonghyup, BNK, JB, and DGB Financial Group), overseas cases, expected effects, and justifications. A Korea Federation of Banks official said, "We are currently waiting for the official stance of the financial authorities," adding, "We are focusing first on the bank competition evaluation to be conducted in the second half of the year."

This content was produced with the assistance of AI translation services.