Toss Bank Approval D-2... Internet Banking Market Expands

Korea Development Bank Also Considering Participation in Paid-in Capital Increase

[Asia Economy Reporter Park Sun-mi] As the third internet-only bank in Korea, Toss Bank, awaits final approval, KDB Industrial Bank is considering participating in a 500 billion KRW capital increase by Toss (Viva Republica), expanding the internet banking market landscape.

According to the financial industry on the 7th, the Financial Services Commission will decide on the final approval of Toss Bank at its regular meeting on the 9th. Toss Bank received a preliminary banking license in December 2019, submitted its final license application in February this year, and aims to officially launch around September to October following this approval. Although the launch has been delayed compared to the original plan due to the spread of COVID-19 and other factors, Toss Bank was included in the government’s recent plan to expand internet-only banks’ services to medium- and low-credit borrowers, making approval on this day highly anticipated.

The financial authorities plan to gradually increase the proportion of credit loans to medium- and low-credit borrowers (credit rating below grade 4, credit score 50%) in internet-only banks, targeting over 30% by the end of 2023. To achieve this, it is essential to advance the credit scoring system (CSS) that can accurately assess the repayment ability of medium- and low-credit borrowers. Toss Bank is in a position to enhance its CSS by leveraging sufficient data from its 20 million Toss application users.

While K Bank and Kakao Bank have set targets of 32% and 30% respectively for the proportion of medium- and low-credit borrowers by the end of 2023, Toss Bank plans to set this ratio above 30% from its first year of operation and increase it to around 44% by 2023. A Toss representative said, "The financial authorities are aiming to expand the proportion of credit loans to medium- and low-credit borrowers, and Toss’s advanced credit evaluation capabilities will play a positive role in this."

National policy banks are also preparing to enter the already competitive internet banking market. KDB Industrial Bank is the only bank in the banking industry currently considering participation in Toss’s 500 billion KRW capital increase. If confirmed, this will be KDB’s first investment in an internet-only bank and the only banking sector investor participating in this capital increase. The review is in its final stages, and the industry expects KDB’s participation to be around 80 billion KRW.

Since a significant portion of the funds raised through the capital increase will be invested in the soon-to-launch Toss Bank, KDB’s participation is widely interpreted as an investment considering the growth potential of internet-only banks. A KDB official confirmed, "We are reviewing participation in Toss’s capital increase, but the amount has not yet been finalized."

Major banks are closely monitoring the growing internet banking market and looking for opportunities to join. The four major commercial banks?KB Kookmin, Shinhan, Hana, and Woori?have already invested in internet-only banks, and recently, the Korea Federation of Banks conveyed the intentions of financial holding companies to establish internet-only banks to the financial authorities, opening the door for further developments.