[The Editors' Verdict] "Benefit the Customer": Internet Banks on the Rise

The growth of internet banks is remarkable. Kakao Bank's net profit for 2023 increased by 34.9% compared to the previous year, reaching 354.9 billion KRW. This amount surpasses some of the five regional banks nationwide (Gyeongnam Bank 247.6 billion KRW, Gwangju Bank 240.7 billion KRW, Jeonbuk Bank 204.5 billion KRW). It is only 24.2 billion KRW and 9 billion KRW less than Busan Bank (379.1 billion KRW) and Daegu Bank (363.9 billion KRW), respectively.

When K Bank and Kakao Bank launched in 2017, there were many doubts about whether internet banks could truly act as a 'catfish' to boost the potential and competitiveness of commercial banks. When asked various commercial bank officials, the common response was, "Isn't it just a storm in a teacup?" They said that while internet banks might exert influence in niche markets, it would be difficult to shake the overall banking landscape. Comments included, "People who move large sums of money dislike non-face-to-face transactions. They want to see faces directly," and "Banks are a regulated industry; can IT people unfamiliar with financial regulations really do well?"

Although a minority opinion, one bank official said, "It's just a matter of time; internet banks will likely capture a significant portion of household finance in the future. Corporate finance and the high-net-worth market will still belong to commercial banks."

Seven years have passed. Internet banks have created new products and services with fresh ideas. They introduced group accounts, character marketing, financial services for teenagers, and recently launched services like interest-earning accounts and demand deposit accounts with interest rates in the 2% range.

Commercial banks have also embarked on digital innovation. They reorganized their organizations around digital, adopting an 'Agile' organizational culture that is flexible and quick to change. They even imitated internet banks' ideas such as character marketing. They fully embraced the one-application (app) strategy of Kakao Bank and Toss Bank.

Recently, Toss Bank's 'lifetime free currency exchange' has caused a sensation. This was influenced by Hana Financial Group's 'Travelog Check Card.' While Travelog specializes in travel and offers one-time free currency exchange fees, Toss Bank allows multiple exchanges from dollars to won and back to dollars for free, making it useful for currency trading purposes. Also, when linking a foreign currency account with a check card, not only currency exchange but also payment fees are free. Toss Bank's foreign currency accounts surpassed 600,000 in just 21 days, and customers linking foreign currency accounts with Toss Bank check cards exceeded 500,000.

The government's policy effects have also contributed. The 'loan switching platform' trio, which allows refinancing of credit loans, mortgage loans, and jeonse (lease) loans at lower interest rates, has gained great popularity. Without internet banks, which can significantly lower interest rates due to fewer branches and personnel costs, such success might not have been possible. The amount attracted by internet banks Kakao Bank and K Bank through the mortgage refinancing platform in January this year was 572.2 billion KRW (2,975 cases), nearly double the 321.2 billion KRW (1,822 cases) of the five major commercial banks. Internet banks are also expected to dominate the jeonse loan refinancing service, which started on January 31.

In particular, internet banks do not charge prepayment penalties on loans. Commercial banks charge prepayment fees of 1.2?1.4% for mortgage loans and 0.6?0.7% for jeonse loans. The annual amount banks collect from prepayment fees is about 300 billion KRW. Without prepayment fees, borrowers can repay immediately when unexpected funds come in. It is also useful when a loan is needed for just 2?3 months, such as for home repairs or when the jeonse lease term does not align.

Hong Min-taek, CEO of Toss Bank, whom I met privately, said, "To innovate the existing banking market, we must offer products and services that benefit customers unconditionally," adding, "One of Toss Bank's fundamental principles is 'to benefit the customer.'"

I hope internet banks continue to focus on innovation and grow further. While the purpose of a company is often said to be 'profit pursuit,' isn't the raison d'?tre of a company to 'provide good products and services to customers'?

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