Internet Banks' 'Innovation' Followed by Similar Product Launches from Commercial Banks [1mm Financial Talk]

Hana Bank Launches 'Daldal Hana Account'... Similar to K Bank's Living Account
Major Banks Also Introduce Group Accounts and Fee-Free Currency Exchange Products

Commercial banks are launching innovative products following those introduced by internet banks. This is interpreted as a move to avoid falling behind in the increasingly fierce competition with internet banks.

Hana Bank launched the ‘Daldal Hana Account’ on the 11th. It will be available for subscription starting from the 21st of this month. This account offers an annual interest rate of 1.90% when designated as a salary account, and if subscribed by December 31 of this year, an additional 1.00% annual interest rate applies, resulting in a maximum annual interest rate of 2.9% on up to 2 million KRW. All fees for transfers to other banks and ATM cash withdrawal fees are completely free.

This product is especially similar to K Bank’s ‘Saenghwal Account,’ which was launched in August last year. When depositing an amount of 3 million KRW or less in this account, an annual interest rate of 3.00% is provided. Like the Daldal Hana Account, all fees are waived. It gained popularity to the extent that 1 million accounts were opened within five months. Additionally, a ‘Subscription Fee Refund’ event was held until January. If the average monthly balance of 3 million KRW is maintained, the monthly subscription fee for Coupang Wow Membership (4,990 KRW) or Naver Plus Membership (4,900 KRW) is free. With this benefit, depositing 3 million KRW in the account yields an annual interest rate of 3% plus the value of the monthly subscription fee, effectively providing an annual return of 5%.

The first to offer a groundbreaking interest rate on demand deposit accounts was Toss Bank. When it launched in 2021, it provided an unconditional annual interest rate of 2.0% upon opening an account. The following year, the interest rate was raised to 2.3%, and for amounts exceeding 50 million KRW, an annual interest rate of 4% was offered. Currently, it operates at an annual interest rate of 2.0%, but last month it launched the ‘Nanwoomoeugi Account,’ where interest accumulates daily and is compounded. This is the first in the banking sector to automatically pay interest daily. If 100 million KRW is deposited, approximately 5,400 KRW in pre-tax interest accumulates daily. Consumer response has been positive, with the account balance surpassing 1 trillion KRW within seven days of launch.

There are many precedents of commercial banks releasing products similar to those of internet banks. Group accounts and free foreign exchange fee policies are representative examples. Kakao Bank was the first in the financial sector to start group account services in 2018. Following that, Toss Bank launched group accounts in February last year. Subsequently, KB Kookmin Bank introduced the ‘KB Kookmin General Service’ in May of the same year, allowing the use of existing accounts as group accounts. After that, K Bank and Hana Bank continued to launch group accounts until the end of last year.

The free foreign exchange fee policy is similar. When Hana Financial Group first launched the Travelog Card in 2022 and gained popularity, Toss Bank launched a foreign currency account service this year. It boasts lifetime free foreign exchange fees and is the first domestic financial company to allow exchange of 17 currencies 24 hours a day. Ultimately, Shinhan Bank launched the ‘SOL Travel Check Card’ last month, and Hana Bank expanded the issuance of check cards to all branches nationwide. Woori Bank and KB Kookmin Bank plan to launch related services by next month.

Commercial banks are losing deposit customers to internet banks. As of the end of February this year, the proportion of demand deposits in the total deposits of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup Bank) is 31%. This is a decline compared to 39.1% in 2022 and 32.2% in February last year. Compared to February 2022, the total deposit amount increased by about 10%, but demand deposits decreased by about 12%. Demand deposits are accounts that allow free deposits and withdrawals and pay little to no interest. They are mainly used as salary accounts. Banks secure funds by issuing loans while minimizing interest expenses through demand deposits. This is a source of profitability.

On the other hand, Kakao Bank, the leading internet bank, saw its demand deposits increase from 20.4 trillion KRW in Q4 2022 to 26.1 trillion KRW at the end of last year. The proportion of demand deposits in total deposits is 55.3%, about 20 percentage points higher than that of the five major banks. Based on these low-cost deposits, it boldly lowers loan interest rates and even plays the role of a ‘predator’ in the mortgage loan market. In January, the mortgage loans attracted through refinancing by Kakao Bank and K Bank amounted to 572.2 billion KRW, which is 250 billion KRW more than the 321.2 billion KRW recorded by the five major commercial banks.