In the Bank Interest Competition, Tobank's 'Issued Notes'... "Ingenious" VS "Not Sure"

Toss Bank and Hantoo Securities Introduce 4.5% Annual Issuance Notes
1%P Higher Than Bank Fixed Deposits... 'Formidable Competitor Emerges'
No Effect on Deposit Increase and Low Fees Raise Concerns Over Effectiveness

The third internet bank, Toss Bank, scheduled to launch on the 5th, is drawing attention from the banking sector. Even before its launch, it announced the release of groundbreaking interest rate products, including the highest deposit interest rate in the banking sector at 2% per annum and a minimum loan interest rate in the high 2% range, causing tension not only among other internet banks but also among commercial banks. Especially as financial authorities tighten regulations on household loans, leading to rising loan interest rates and restrictions on loan limits, Toss Bank's announcement of unsecured loans with a maximum limit of 270 million won is expected to attract demand from so-called "loan refugees." The photo shows the Toss Bank headquarters in Gangnam-gu, Seoul, on the 4th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Minwoo Lee] Amid fierce competition over savings and deposit interest rates in the banking sector, Toss Bank has unveiled a unique weapon. In collaboration with a securities firm, it introduced a ‘promissory note’ with an interest rate in the mid-4% range, significantly surpassing general deposit rates. This move has drawn industry attention with mixed opinions, some finding it innovative while others question its effectiveness.

According to financial sources on the 11th, Toss Bank launched the ‘Find the Financial Product That Suits Me’ service the day before, featuring Korea Investment & Securities’ ‘First Promissory Note’ as the first offering. The special promotional interest rate is 4.5% per annum for a one-year maturity, with subscription amounts ranging from 1 million to 50 million KRW per person.

A promissory note is a note issued by a securities firm to raise funds by promising a fixed return. It is a short-term financial product with a maturity of less than one year, similar to a bank’s time deposit. However, unlike bank products, it is not protected by deposit insurance but only guarantees the principal. In other words, unlike the deposit protection system where the state (Deposit Insurance Corporation) is responsible for principal recovery, the financial company is responsible here. Therefore, if the financial company goes bankrupt, the principal could be lost. However, promissory notes can only be issued by securities firms designated as large-scale investment banks (IBs) with equity capital exceeding 4 trillion KRW, making them relatively safe.

Compared to deposit products offered by commercial banks, the promissory note product introduced by Toss has a generous limit and top-tier interest rates. According to the Korea Federation of Banks, the highest interest rates among current commercial bank time deposit products for 12 months are KDB Industrial Bank’s ‘KDB Hi Time Deposit’ and Woori Bank’s ‘Woori First Transaction Preferential Time Deposit.’ However, these also stand at 3.60%, nearly 1 percentage point lower than the promissory note introduced by Toss Bank. This brings a strong competitor from outside the banking sector into the increasingly competitive deposit product market.

The industry has shown mixed reactions to this. Some banks expressed surprise. A representative from an internet-only bank said, “We didn’t expect such an idea,” adding, “It’s very innovative to find a way to attract customer attention without incurring interest costs.” Professor Jiyong Seo of Sangmyung University’s Business Administration Department explained, “The combination of Toss’s platform and Korea Investment & Securities’ product could be a good example of financial company diversification,” and added, “Since the Financial Services Commission chairman also mentioned the separation of banking and industry while emphasizing the enlargement and diversification of financial companies, this trend is expected to accelerate.”

On the other hand, there are negative views that its effectiveness is limited. It does not help Toss Bank secure deposits, and the commission from introducing promissory notes is also not significant. An executive from a commercial bank pointed out, “Toss Bank, which cannot provide corporate loans despite its massive traffic, has opened an advertising channel,” and added, “If this becomes widespread, other banks will follow one by one, but it is unclear what the actual income for banks, not the securities firms issuing the notes, will be.”