[Why&Next] Complex Calculations Ahead of Preliminary Approval for 4th In-Bank... Why Are Participants Withdrawing One After Another?

Duzon Bank and U Bank, Once Leading Candidates, Withdraw in Succession
Korea Small Office Bank Emerges as a Strong Contender,
But Uncertainty Remains Over License Approval

With the preliminary approval application for the 4th Internet-Only Bank (4th InBank) just about a week away, intense behind-the-scenes efforts are underway among the participating companies. As some consortia, once considered strong candidates, have declared non-participation or postponement, and some banks have newly thrown their hats into the ring, the calculations among participants have become complex. Among the remaining participants who have declared they will complete the process, there are conflicting views: some expect that the 4th InBank license will be granted, while others believe that, as in the 2019 preliminary approval, the Financial Services Commission may not grant licenses to all applicants.

Leading Consortia Withdraw One After Another... Will Korea Small Office Bank's Solo Run Solidify?

According to the financial sector on the 20th, a new landscape is emerging for the 4th InBank candidates. The most promising candidate, the Duzon Bank consortium (including Duzon Bizon and Shinhan Bank), announced on the 17th that it would not participate in the preliminary approval application. A Duzon Bizon official stated, "During the preparation process for the internet-only bank preliminary approval application, we received multifaceted consulting on strategy, finance, law, and ICT, considering competition in the existing banking industry, and continuously reviewed and deliberated on the business plan. After careful consideration by management, it was decided not to participate in the preliminary approval application." The 'Duzon Bank' consortium, led by Duzon Bizon, the nation's top enterprise resource planning (ERP) company, was considered a strong candidate among the 4th InBank consortia. This was due to Duzon Bizon's data technology combined with the participation of Shinhan Bank and DB Insurance, providing both technological capability and capital strength.

On the same day, the U Bank consortium, led by fintech (finance + technology) company Lendit (including Hyundai Marine & Fire Insurance and Naver Cloud), also announced a postponement of its preliminary approval application. U Bank stated, "We have decided to reconsider the application timing," adding, "The participating companies agreed to resume the application in the second half of 2025 after the political uncertainties (such as impeachment) are resolved."

While leading consortia are stepping back one after another, Busan Bank has expressed its intention to join the Korea Small Office Bank (KSD Bank) consortium. The Korea Small Office Bank consortium, led by Korea Credit Data (KCD), operates Cash Note, a management service used by 1.7 million small business owners nationwide. With the addition of Busan Bank to the previously confirmed participants?Woori Bank, NH Nonghyup Bank, Woori Card, and Eugene Investment & Securities?the Korea Small Office Bank consortium has emerged as a new strong candidate based on solid capital strength.

Originally, among the six consortia that expressed interest in the 4th InBank, Duzon Bank, U Bank, and Korea Small Office Bank formed a three-way competition. However, with the withdrawal of Duzon Bank and U Bank, the possibility of Korea Small Office Bank's solo run has increased.

Stricter Licensing Conditions and Political Instability as Variables

Despite the successive withdrawals of leading consortia, the Korea Small Office Bank consortium has expressed its intention to complete the process, leading to expectations that it will become the leading candidate for the 4th InBank. However, some remain cautious. Although the financial authorities have decided not to limit the number of new internet-only bank licenses, they have stated that if the requirements are not met, no licenses will be granted.

In fact, in May 2019, both the Toss Bank consortium and the Kiwoom Bank consortium challenged the preliminary approval for the 3rd InBank but failed to obtain licenses. Toss Bank, which was evaluated as lacking in fundraising capability, only received preliminary approval after forming a new consortium with new investors such as Hana Bank in December of the same year.

Notably, the government's licensing conditions for the 4th InBank have become more stringent. In November last year, the government set the ability to supply funds to small and medium-sized enterprises and small business owners outside the metropolitan area as a licensing condition. Due to the economic downturn and rising delinquency rates among small business owners, it is realistically difficult to simultaneously satisfy soundness and social responsibility.

Political uncertainty is also a variable. Since December last year, political instability has continued due to President Yoon Seok-yeol's declaration of emergency martial law. The original background for promoting the 4th InBank was President Yoon's criticism of the 'bank monopoly' system, which led to the 'Banking Sector Management, Business Practices, and System Improvement Plan.' The core of the improvement plan is to continuously review new internet-only bank license applications.

The Financial Services Commission plans to receive preliminary approval applications on the 25th and 26th, followed by a 2-3 month evaluation by a private external evaluation committee and review by the Financial Supervisory Service, with the possibility of deciding on preliminary approval at the Financial Services Commission's regular meeting as early as the first half of this year.

A financial industry official said, "Existing internet banks have grown mainly through household loans, raising doubts about innovation, and there are limits to growth through household loans alone. Also, due to K Bank's successive failures in initial public offerings (IPOs), the 4th InBank is not attracting as much attention as when the first internet bank was established."