"Competition Boosted by Internet Bank Introduction... Somewhat Lacking in Innovation Aspect"

Korea Institute of Finance
Seminar on 'Evaluation of Internet-Only Banks Introduction Performance and Implications' Held

While the introduction of internet banks has increased customer satisfaction and stimulated competition in the banking sector, research shows that the effect on reducing interest rate burdens is not clear, and innovation aspects such as the advancement of credit evaluation systems are somewhat lacking. Accordingly, opinions have emerged that the 4th internet bank should establish a differentiated credit evaluation system and possess the major shareholder’s funding capabilities.

Senior Research Fellow Lee Byung-yoon of the Korea Institute of Finance stated this on the 13th at the ‘Evaluation of the Introduction of Internet-Only Banks and Implications’ held at the Bankers’ Hall in Jung-gu, Seoul. First, Lee evaluated that the convenience for financial consumers has somewhat improved with the introduction of internet banks. In particular, he judged that consumer satisfaction with bank mobile banking applications (apps) has increased. He said, “Internet bank apps have higher consumer satisfaction than existing bank apps,” adding, “Consumers have evaluated that the entry of internet banks has dramatically improved the ease of use of bank mobile apps.”

However, he analyzed that efforts by internet banks were somewhat insufficient regarding the fact that deposit interest rates are lower and loan interest rates are higher compared to other banks, and that the establishment of differentiated credit evaluation systems was carried out only after five years since their launch. The activation of mid-interest loans and credit supply to low- and medium-credit borrowers also fell short of initial expectations. He mentioned that with the financial authorities’ announcement of the ‘Internet Bank Plan to Expand Loans to Low- and Medium-Credit Borrowers,’ the proportion of credit loans to low- and medium-credit borrowers by internet banks has increased.

Lee also pointed out that while internet banks contributed to promoting competition in some loan markets, there were somewhat insufficient aspects. Since 2022, competition in the banking market has intensified, strengthening the competitiveness of the banking industry itself, but this is likely more due to the base interest rate hikes and various policies promoting competition in the banking sector rather than the introduction of internet banks. He judged that even in the household loan market, where internet banks focus their operations, they failed to offer more competitive prices compared to other banks.

Lee Hang-yong, President of the Korea Institute of Finance, is delivering a welcome speech at the "Evaluation of the Introduction of Internet-Only Banks and Implications" held on the 13th at the Bankers' Hall in Jung-gu, Seoul.
[Photo by Oh Kyu-min moh011@]

Regarding the approval of the 4th internet bank, Lee emphasized that evaluation should focus on the establishment and feasibility of a differentiated credit evaluation system and the major shareholder’s funding capabilities. He said, “The consortium currently pursuing establishment (The Dozen Bank, U Bank, KCD Bank, Soso Bank) aims to specialize in financing for small business owners and SMEs, which existing internet banks have had difficulties handling,” adding, “The feasibility of the business plan and the major shareholder’s funding capability will be essential elements for approval.”

He also analyzed that if the reason for approving the 4th internet bank is to promote competition in the banking industry, it is necessary to implement various competition-promoting policies in parallel. Lee said that although the approval policy somewhat alleviated the concentration in the banking industry, it did not significantly affect competition, stating, “Competition promotion may not be achieved as expected by approval policy alone.” He added, “Measures such as encouraging the growth of existing regional banks or some savings banks or promoting digitalization to enhance competition can also be considered.”

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