Savings Banks "Extensive Know-How" vs Internet Banks "Advanced CSS"... Fierce Mid-Interest Rate Battle

Focus on Individual Strengths to Win Competition
Experts: "Consumers Have More Choices"

[Asia Economy Reporters Kiho Sung, Seungseop Song] As the government plans to significantly expand the supply of mid-interest rate loans, the mid-interest rate market ranging from 6.5% to 16% is expected to rapidly emerge as a new battleground in the financial sector. In particular, the authorities have relaxed the requirements for mid-interest rate loans and strengthened incentives, while pressuring internet banks by threatening disadvantages in entering new businesses if they fail to meet the proposed targets. Accordingly, fierce competition with savings banks, which have traditionally held a high share of mid-interest rate loans, is inevitable. While savings banks intend to compete based on the know-how they have accumulated so far, internet banks plan to maximize the use of their strength in big data analysis.

According to financial authorities and the financial sector on the 27th, last year savings banks handled 8.4041 trillion won in private mid-interest rate loans, accounting for 74.5% of the total supply amount of 11.2788 trillion won. In contrast, internet banks accounted for only 114.9 billion won, or 1%. Looking at the cumulative amount from 2016 to 2020, the share of savings banks is overwhelming. Of the total supply amount of 25.3631 trillion won, savings banks supplied 15.9747 trillion won, or 63%. Meanwhile, internet banks accounted for only 381.9 billion won, or 1.5%.

Despite this situation, savings banks are wary of internet banks because, after the COVID-19 pandemic, financial authorities have been pressuring the expansion of mid-interest rate loans, and internet banks are responding positively to these government policies.

Savings banks believe that some mid-interest rate loan customers may shift to internet banks, as internet banks have an advantage in recognition and convenience. A savings bank official said, "In the financial industry, which is a competition of scale, it is difficult to beat platform companies," adding, "Customer competition will become fiercer, and relatively high-credit users among mid-interest rate borrowers will leave."

There is also an analysis that the mid-interest rate loan market will be segmented and divided, but savings banks still have strengths in serving low- to mid-credit borrowers. Another savings bank official claimed, "No matter how much internet banks expand mid-interest rate loans, it is difficult to reach low- to mid-credit borrowers," adding, "Unlike internet banks that have focused on high-credit customers, savings banks have extensive information and management know-how for low-credit customers."

Internet banks acknowledge the know-how that existing savings banks have in mid-interest rate loans. An internet bank official evaluated, "Existing savings banks have a vast amount of mid-interest rate loan volume and data," adding, "Especially, the accumulation of direct customer data related to mid-interest rate loans is a strength."

Internet banks intend to counterattack savings banks by advancing their Credit Scoring System (CSS). They believe that the core of the mid-interest rate loan market lies in the ability to assess repayment capacity. KakaoBank plans to develop and apply a new CSS with a specialized model added in June this year. K Bank plans to add a specialized model for those with insufficient financial history to its CSS in the fourth quarter and use pseudonymized combined data of financial and alternative information for credit evaluation. Toss Bank also plans to build a CSS reflecting customer information on specialized financial products for low- to mid-credit borrowers.

Experts analyze that these measures were necessary considering the initial purpose of the launch of internet banks. Consumers also see benefits in terms of choice as the mid-interest rate market grows and competition intensifies. Professor Seongin Jeon of the Department of Economics at Hongik University said, "Some may ask why banks, which are not charitable organizations, should increase mid-interest rate loans, but internet banks entered the market with that promise," adding, "This measure will significantly help mid-credit borrowers whose credit scores have somewhat declined due to COVID-19."

Professor Taegi Kim of the Department of Economics at Dankook University analyzed, "In Korea, after commercial banks, the second-tier financial institutions only offered high-interest loans, so mid-interest rates were a weak link," adding, "As accessibility improves and the number of products and providers tailored to mid-interest rates increases, it will become easier to get loans at reasonable interest rates."

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