The 3rd Internet Bank 'Toss Bank' Launches in September... Heated Mid-Interest Loan Battle (Comprehensive)

Financial Services Commission Grants Final Approval Today... Four Months After Application
Three-Way Battle Predicted with KakaoBank and K Bank
Intense Competition Expected in Mid-Interest Loan Market Amidst Commercial and Savings Banks' Checks

[Asia Economy Reporter Kiho Sung] With the launch of ‘Toss Bank’ in the second half of this year approaching, the era of the internet-only bank trinity is entering its final countdown. Big tech companies, despite being latecomers, are regarded as ‘catfish’ shaking up the financial market by leveraging their existing platform customer base and brand recognition. In particular, Toss has announced that it will focus on targeting middle- and low-credit borrowers, unlike Kakao Bank and K Bank, causing not only commercial banks and existing internet banks but also savings banks with overlapping target demographics to be on high alert.

On the 9th, the Financial Services Commission decided on the full license for Toss Bank as an internet-only bank during its regular meeting. Viva Republica, which operates the Toss service, challenged the internet-only bank sector and received a preliminary license from the FSC in December 2019. Subsequently, it formed the Toss Innovation Preparation Corporation, prepared for the establishment of the corporation, and applied for the full internet-only bank license on February 5th. With the acquisition of the full license on this day, Toss Bank’s official service is expected to start as early as September, increasing the number of internet-only banks to three, following Kakao Bank and K Bank.

The financial sector’s attention to Toss Bank is due to the ‘catfish effect’ (where the entry of a strong competitor raises the competitiveness of existing competitors) that the third internet-only bank will bring. The emergence of Toss Bank will inevitably change the existing competitive structure dominated by Kakao Bank and K Bank. Savings banks, which share overlapping target customers, are also closely monitoring Toss’s moves.

The biggest change is expected in the mid-interest loan sector. Currently, financial authorities are encouraging internet-only banks to expand mid-interest loans. Last month, the FSC announced a plan to expand mid-interest loans, requiring internet-only banks to allocate at least 30% of their unsecured loans to borrowers with credit ratings of grade 4 or lower by the end of 2023.

Toss Bank reported in its business plan submitted to financial authorities that it aims to have mid-interest loans account for 34.9% of total loans by the end of this year after its launch. By the end of 2023, it pledged to raise the proportion of mid-interest loans to 44%, about half of total loans. This surpasses the plans of Kakao Bank and K Bank, which aim to expand to 30% by 2023.

Industry insiders view Toss’s aggressive expansion of mid-interest loans not only as aligning with the financial authorities’ policy direction but also as a ‘differentiation strategy’ distinct from existing internet-only banks.

Toss is confident in its credit scoring system (CSS). Currently, Toss’s subscriber base is approaching 20 million. It expects to develop a sophisticated and advanced credit scoring model by incorporating not only data from existing personal credit bureaus (CB) but also customer data within the Toss app.

Kakao Bank Also Targets Mid-Interest Market with New Credit Scoring Model

As the launch of Toss Bank nears, the mid-interest loan market is already becoming a battleground. Kakao Bank announced an expansion plan for mid-credit loans earlier and on this day revealed the application of a new CSS and an increase in the maximum loan limit for mid-credit loan products to 100 million KRW.

Kakao Bank raised the loan limit for ‘mid-credit loans’ from 70 million KRW to 100 million KRW and lowered interest rates by up to 1.52 percentage points with the application of the new credit scoring model. Customers with a KCB credit score of 820 or below are eligible for a minimum interest rate of 2.98%.

Kakao Bank had previously increased the loan limit from 50 million KRW to 70 million KRW in March and further reduced loan interest rates by up to 1.2 percentage points in May.

Improvements to the CSS will continue. In the second half of this year, analysis results of mobile phone micro-payment information and individual business sales data will be reflected. Data cooperation with the Kakao community, starting with Kakao Pay, is also accelerating. Next year, non-financial information held by the Kakao community will be analyzed and applied.

K Bank, having welcomed BC Card as a major shareholder, is preparing to expand loans to middle- and low-credit borrowers through CSS enhancement and capital increase. Regarding CSS, it previously used limited data such as KT customer information but is now incorporating BC Card data and aiming for enhancement and stabilization by the second half of this year.

Capital strengthening for competition is also underway. Last month, K Bank approved a paid-in capital increase of 1.25 trillion KRW to expand mid-interest loans. Once completed, K Bank’s capital will increase from 91.7 billion KRW to 2.1515 trillion KRW, more than doubling. This will put it on par with Kakao Bank’s capital size of 2.0383 trillion KRW.

A K Bank official stated, "We plan to continuously expand loan supply to middle- and low-credit borrowers," adding, "We are preparing a related task force (TF) and plan to launch the Saetdol loan as soon as possible."

An industry insider commented, "The launch of the third internet-only bank will broaden choices for customers and intensify service competition within the industry. Especially in the mid-interest loan sector, interest rate competition is likely to intensify, and future success will depend on screening and risk management."

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