Toss Bank Launch Imminent... Internet Banks' 'Mid-Interest Rate Loan Battle'

If Approval Is Obtained This Month, Launch in July
Fierce Competition with Financial Holding Companies and Regional Finance Joining

[Asia Economy Reporter Kiho Sung] As the launch of Toss Bank approaches, competition in the mid-interest loan market among internet-only banks is expected to intensify. Kakao Bank and K Bank have decided to expand mid-interest loans in accordance with financial authorities' policies, and Toss Bank is tightening its reins by advancing its Credit Scoring System (CSS). Financial holding companies and regional financial groups are also preparing to enter the internet banking sector, signaling a fierce battle in the mid-interest loan market.

According to the financial sector on the 11th, the Financial Services Commission plans to officially place the final approval of Toss Bank on the agenda at its regular meeting this month. The FSC's regular meetings are scheduled twice this month, on the 12th and 26th. Industry insiders highly anticipate that the Toss Bank final approval will be presented at the meeting on the 26th.

If Toss Bank obtains the final approval within this month, its planned July launch is expected to proceed smoothly. Viva Republica, which operates the mobile financial platform Toss, applied for Toss Bank's final approval from financial authorities on February 5. The Financial Supervisory Service communicated improvement points in mid-last month, and Toss has completed the necessary revisions and supplements. Once Toss Bank launches, it will enter a three-way competition with Kakao Bank and K Bank in the internet banking sector.

The fiercest battleground in the three-way internet bank competition is expected to be the expansion of mid-interest loans for middle- and low-credit borrowers. Mid-interest loans are unsecured loans offered at single-digit interest rates within 10% annually to middle-credit borrowers, roughly equivalent to credit grades 4 to 6 under the previous system.

Internet banks have been criticized for conservative operations targeting high-credit customers, contrary to their original establishment purpose. As of the end of last year, borrowers with credit grades below 4 accounted for 12.1% of internet banks' unsecured loans, about half the domestic bank average of 24.2%. Accordingly, financial authorities have urged internet banks to increase the proportion of mid-interest loans, and Toss Bank reportedly submitted related plans when applying for final approval.

As the mid-interest loan market emerges as a battleground, internet banks are accelerating the development of their CSS. Since mid-interest loans target borrowers with lower credit scores, precise credit evaluation is crucial to business success. Kakao Bank plans to utilize customer data shared through cooperation with Kakao and Kakao Pay for its CSS. K Bank is building a sophisticated CSS through collaboration with the three major telecom companies. Toss Bank is planning synergy by combining its own data of 19 million customers with the only internet bank to have obtained the MyData (personal credit information management) full license.

Mid-interest loan products will also be significantly expanded. Kakao Bank plans to increase the supply scale of mid-interest loans beyond last year's 1.3 trillion KRW and will soon launch dedicated loan products. K Bank aims to raise mid-interest loans to 30% by 2023 and plans to release the 'Saitdol Loan' within this year.

A financial industry official said, "Financial authorities are showing strong interest in internet banks' mid-interest loans, so related products are expected to continue being launched for the time being. Especially for Toss Bank, as financial holding companies and regional financial groups launch their internet banks in the future, it will likely show a more aggressive stance due to the intense competition."