Internet-Only Bank Toss Bank Approved on the 9th... National Policy Banks Also Considering Investment (Comprehensive)

Financial Services Commission to Decide on Toss Bank's Final Approval at Regular Meeting on the 9th

[Asia Economy Reporter Park Sun-mi] As Toss Bank, the third internet-only bank in South Korea, approaches 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 and submitted its final license application in February this year. With this approval, it aims to officially launch around September to October. Although delayed from 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 aim to gradually increase the proportion of credit loans to medium- and low-credit borrowers (credit rating below grade 4, credit score 50%) among internet-only banks to exceed 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 based on sufficient data from its 20 million Toss application users.

Setting Credit Loan Ratio for Medium- and Low-Credit Borrowers Above 30% from First Year of Operation

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 raise it to around 44% in 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."

Toss Bank is building its CSS by incorporating customer information from the secondary financial sector, which has a high proportion of medium- and low-credit borrowers, as well as specialized financial products for medium- and low-credit borrowers such as Sunshine Loans (Haetsal Loan). It plans to develop separate models for customers with insufficient financial history, self-employed individuals, and salaried workers, applying evaluation criteria tailored to each group’s characteristics. Among the evaluation criteria, the weight of negative financial credit information (such as delinquencies and high-interest loan history) will be reduced, and alternative information beyond financial history will be actively reflected in credit evaluation.

KDB Industrial Bank Considering Participation in Capital Increase

The national policy bank is also preparing to enter the already expanding internet banking market. KDB Industrial Bank is the only bank in the banking industry currently considering participating in Toss’s 500 billion KRW capital increase. If confirmed, it 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 the participation amount 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 with the internet banking sector’s growth potential in mind. A KDB official confirmed, "We are reviewing participation in Toss’s capital increase, but the amount has not yet been finalized."

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