[The Editors' Verdict] The Ripple Effects Toss Bank Will Bring

The launch of the country’s third internet bank, ‘Toss Bank,’ is scheduled for September and is now in the final countdown. There are opinions that its capital size of 250 billion KRW is small and that it lacks experience in credit risk management, which is a core aspect of banking operations. However, expectations seem quite high regarding customer satisfaction improvement and other factors, given Toss’s explosive growth, having become a unicorn within three years of service launch. The strong “leading fish” effect of the second internet bank, ‘Kakao Bank,’ which has already been studied, also plays a role. Kakao Bank shocked the banking sector by opening 4.35 million non-face-to-face accounts within 100 days of starting operations and turning a profit in less than two years.

Considering that Toss Bank is the third internet bank, the ‘mobile financial holding company’ nature of its parent company Viva Republica, and its core customers being the young ‘2030’ generation, the following ripple effects can generally be anticipated.

First, there is the ‘reshuffling effect’ in the internet banking industry. Looking at the current situation, K Bank is recovering after partnering with Upbit, but Kakao Bank has largely dominated so far. If Toss Bank joins, creating a three-way competition, the story changes. Various combinations of mutual cooperation and checks and balances become possible. Moreover, Toss Bank’s connected Toss app has 20 million users. Although fewer than Kakao Bank’s parent company’s 30 million members, since all are financial consumers, the landscape could be newly reshaped.

Upon receiving approval, Toss Bank aligned with financial authorities’ requests by positioning itself as a ‘Challenge Bank for financially marginalized small business owners.’ Both K Bank and Kakao Bank had not received satisfactory evaluations for their mid-interest loans aimed at financially marginalized groups. Toss app users utilize various services such as payments, remittances, securities, insurance, and banking, and most belong to the 2030 generation, making them financially marginalized due to small funds. This suggests that Toss Bank’s mid-interest loan credit scoring system (CSS) could be highly competitive.

Second, there is the acceleration effect on digital and mobile transformation in the banking sector. The increase in more competitive and cost-effective digital and mobile financial services will lead to the overall promotion of digital and mobile transformation in the banking sector. Currently, South Korea’s financial innovation stage is at the third phase, the ‘technology convergence stage using data.’ To provide customized financial services to consumers anytime and anywhere by utilizing data and artificial intelligence, digital and mobile transformation at hand is essential. Furthermore, the financial payment data available at this third stage of financial innovation can analyze consumer behavior across all industries and products.

If internet banks begin to offer bundled services by integrating financial and non-financial services, existing banks, which are unfamiliar with or resistant to integration due to the ‘separation of banking and commerce principle,’ may face competitiveness issues. Ultimately, voluntary acceleration of digital and mobile transformation is necessary. This aligns with recent calls within the banking sector for ‘internet bank approvals.’

Third, there is the effect of revitalizing the MyData business through additional service provision and competition. The MyData business is, in short, a financial platform business. The more diverse financial services converge, the greater the potential for improving customer satisfaction and competitiveness. Through Toss Bank, the addition and convergence of more diverse and competitive banking services can be expected to invigorate the MyData industry.

Fourth, there is the effect of expanding the role of the 2030 generation in banking and financial markets. The MZ generation has felt distant from the financial market, especially the banking sector where large transactions occur. However, the birth of Toss Bank, which targets the 2030 generation as its main customers, could serve as an opportunity to expand their participation in the financial market.

Since Toss Bank started as a fintech startup, unlike large banks and big tech companies, it is expected to contribute to the continuous boom and ecosystem formation of the new financial industry fintech sector.

Jung Yoo-shin, Dean of the Graduate School of Technology Management, Sogang University