[InBank 2.0]① KakaoBank's 91% Rapid Growth in 3 Years... Spotlight on the 'Dark Horse' to Break Bank Oligopoly

Rapid Annual Growth
But It's Too Early for a Catfish to Stimulate Competition

As financial authorities intervene in the banking industry's oligopoly centered around the five major financial holding companies, internet-only banks are gaining renewed attention. Recently, to break the oligopoly through strengthening the competitiveness of internet-only banks, there have been calls not only for deregulation but also for the establishment of a fourth internet-only bank. While the financial sector positively evaluates internet-only banks for promoting the digital transformation of commercial banks and achieving 'rapid growth' based on convenience, there remains skepticism about whether they are genuinely 'threatening' competitors that stimulate competition among banks.

Expanding Territory with Digital and Convenience Weapons... Rapid Growth of Internet Banks

According to disclosures by the Korea Federation of Banks on the 13th, KakaoBank's total assets reached 40.8398 trillion KRW (as of last September), growing 15% compared to the previous year (35.5509 trillion KRW) and increasing 91% compared to 2019. K Bank's total assets also grew about 450% compared to 2019, reaching approximately 15.5405 trillion KRW. Toss Bank, which joined as a latecomer in 2019, has assets around 27.3589 trillion KRW.

KakaoBank's customer base reached 20.42 million (as of the end of last year). Its monthly active users (MAU) stand at about 16.44 million, which is even higher than KB Kookmin Bank's 10 million MAU, the largest among the five major banks. KakaoBank has steadily expanded its business scale, achieving a record operating profit of 355.2 billion KRW last year. Net income has also shown consistent growth: 14 billion KRW in 2019, 114 billion KRW in 2020, 204 billion KRW in 2021, and 263.1 billion KRW in 2022.

K Bank has continued its growth by expanding its profits since turning profitable in 2021. Its net income last year was 83.6 billion KRW, a 272% increase from 22.5 billion KRW the previous year. Toss Bank, which had been operating at a loss, showed growth potential by turning profitable in the third quarter of last year based on pre-provision operating profit.

The rapid market establishment of the three internet-only banks?KakaoBank, K Bank, and Toss Bank?is attributed to maximizing their unique strengths such as process simplification and digitalization. Especially, leading the era of digital transformation, mobile banking has become a kind of 'new normal' in the banking industry since the emergence of internet-only banks.

Through this, the three banks have expanded their business areas from household loans to increasing loans for medium- and low-credit borrowers who were excluded from the primary banking sector, as well as mortgage loans and loans for self-employed individuals. They have also increased their presence by expanding operating profits and loan volumes independently.

Was the Core Mission of 'Catalyst Role' Fulfilled Amidst Remarkable Growth?

Opinions differ on whether the rapidly growing internet-only banks have successfully fulfilled their mission to drive competition among commercial banks.

First, indicators show that competition in the banking industry has improved to some extent. According to the 'Banking Industry Competition Evaluation Report' released in November last year by the Financial Industry Competition Evaluation Committee, an advisory body to the Financial Services Commission, the market concentration of general banks slightly decreased after the launch of internet-only banks.

The report analyzed the market concentration of general banks using the Herfindahl-Hirschman Index (HHI), which dropped from 1668 at the end of March 2018 to 1660 at the end of 2021. Typically, an HHI below 1000 indicates an 'unconcentrated market,' below 1800 a 'moderately concentrated market,' and above 1800 a 'highly concentrated market.'

By asset category, total loans decreased from 1708 to 1695, and household loans from 1777 to 1679, indicating reduced market concentration among general banks. Conversely, market concentration increased for small and medium enterprise loans (from 1626 to 1695) and total deposits (from 1723 to 1749).

However, the report concluded that internet-only banks have not yet played a meaningful 'catalyst' role. The committee stated, "(Internet-only banks) are still too small to be significant competitors to large banks and thus have not effectively stimulated competition among banks."

In terms of scale, internet-only banks are still not considered a threatening level to commercial banks. KakaoBank, the largest internet-only bank, had total assets of 40.8398 trillion KRW as of the third quarter last year, which is less than one-tenth of KB Kookmin Bank's 537.9971 trillion KRW, the largest commercial bank in Korea. It also lags behind Busan Bank, the largest regional bank, which has 72.802 trillion KRW in assets.

A representative from a commercial bank said, "When internet-only banks first appeared, their differentiation points were non-face-to-face transactions and platform integration, but existing commercial banks quickly addressed these weaknesses. Their scale is still not large enough to be perceived as a threat."