The Rise of the Third Force... Internet Banks Ignite the 'Mid-Interest Rate Three Kingdoms' Battle

Toss Bank Expected to Launch as Early as This September
Kakao Bank and K Bank Also Preparing for Launch

[Asia Economy Reporter Kiho Sung] As the launch of Toss Bank approaches in the second half of the year, competition in the mid-interest rate market is heating up. In particular, Toss has announced that it will focus on targeting mid- to low-credit borrowers, causing not only commercial banks and existing internet banks but also savings banks with overlapping target customers to become highly alert.

According to the financial sector on the 12th, the Financial Services Commission recently decided to grant the full license for Toss Bank as an internet-only bank during a regular meeting. With the acquisition of the full license, Toss Bank is expected to launch as early as September. Once Toss Bank’s official service begins, the number of internet banks in Korea will increase to three, following Kakao Bank and K Bank.

The reason the financial sector is paying attention to Toss Bank is the ‘catfish effect’ brought by the third internet bank (where the entry of a strong competitor raises the competitiveness of existing players). The biggest changes are expected to occur in the mid-interest rate loan sector. Currently, financial authorities are encouraging internet banks to expand mid-interest rate loans. Last month, the Financial Services Commission announced a plan to expand mid-interest rate loans, requiring internet banks to allocate at least 30% of their unsecured loans to borrowers with credit ratings of grade 4 or lower by the end of 2023.

In its business plan submitted to the financial authorities, Toss Bank reported that it aims to have mid-interest rate loans account for 34.9% of total loans by the end of this year after its launch. By the end of 2023, it pledged to raise the proportion of mid-interest rate loans to 44%, which is about half of total loans. This surpasses the plans of Kakao Bank and K Bank, which aim to expand to 30% by 2023.

Toss is confident in its credit scoring model (CSS). Currently, Toss’s subscriber base is approaching 20 million. It expects to develop a sophisticated and advanced credit scoring model by incorporating not only data from existing personal credit bureaus (CB) but also customer data within the Toss app.

The mid-interest rate loan market is already becoming a battleground. Kakao Bank recently announced an expansion plan for mid-credit loans and applied a new CSS, increasing the maximum limit of mid-credit loan products to 100 million KRW. Kakao Bank raised the loan limit for ‘mid-credit loans’ from 70 million KRW to 100 million KRW and decided to lower interest rates by up to 1.52 percentage points with the application of a new credit scoring model. As a result, customers with a KCB credit score of 820 or below will receive a minimum interest rate of 2.98%. Additionally, Korea Credit Bureau (KCB) customers with credit scores of 820 or below will be supported with the first month’s interest payment.

Kakao Bank will continue to improve its CSS. In the second half of this year, it plans to incorporate analysis results of mobile phone micro-payment information and individual business sales data. The data cooperation with the Kakao community, which started with Kakao Pay, is also accelerating. Next year, it plans to analyze and apply non-financial information held by the Kakao community.

K Bank, having welcomed BC Card as its major shareholder, is preparing to expand loans to mid- and low-credit borrowers through CSS advancement and capital increase. In particular, while CSS previously used limited data such as KT’s customer information, it is now incorporating BC Card’s data and aiming for advancement and stabilization by the second half of this year.

Capital strengthening for competition is also underway. Last month, K Bank approved a paid-in capital increase of 1.25 trillion KRW to expand mid-interest rate loans. Once the capital increase is completed, K Bank’s capital will more than double from 91.7 billion KRW to 2.1515 trillion KRW. This will put it on par with Kakao Bank’s capital size of 2.0383 trillion KRW.

An industry insider said, "The launch of the third internet bank will broaden choices for customers and intensify service competition within the industry. Especially in mid-interest rate loans, there is a high possibility of entering interest rate competition, and future success will likely depend on screening and risk management."