'Meggi' Appears... 'Sonanui Eunhaeng' Attracts 240,000 Users on Launch Day [Inbaeng 10 Years]①

10 Years Since K-Bank and KakaoBank Obtained Preliminary Licenses in 2015
Financial Consumers Enthusiastic About the "Bank in Their Hands"
K-Bank and KakaoBank Attract 40,000 and 240,000 Customers Respectively on Their First Day

A bank open 24 hours a day, 365 days a year.

This year marks the 10th anniversary since K-Bank, Korea's first internet bank, obtained its preliminary license. Since then, KakaoBank and TossBank have successively entered the market, shaking up the existing financial industry. They enhanced accessibility for financial consumers without restrictions of time and space, attracting customers with lower loan interest rates and higher deposit interest rates than traditional banks, offering greater benefits. The past 10 years of internet banks, which have truly caused a paradigm shift in banking, raise the question: were they a catfish or a loach?

Dreaming of Korea's 'Monzo' Bank... The Arrival of the Catfish

Monzo in the UK, Chime in the US, N26 in Germany, Rakuten Bank in Japan, MyBank in China.

Internet banks have already appeared overseas since the 1990s, and in Japan since the 2000s. The forms of internet banks varied by country: American internet banks competing with traditional banks, European internet banks combining fintech (finance + technology) and banking, and Asian internet banks merging finance and big tech (large information technology companies). However, one commonality existed: improving convenience for financial consumers.

In Korea, serious discussions about internet banks began only in 2015. At that time, as the concept of fintech was spreading rapidly, the Financial Services Commission (FSC) recognized the need to introduce internet banks to strengthen financial competitiveness. Following the financial crisis, weakening bank competitiveness, the absence of new players in banking since 1992's Peace Bank, and the increase in non-face-to-face transactions, the necessity of internet banks emerged as a solution.

In June 2015, the FSC announced the introduction of internet banks, stating, "Internet-only banks will promote the convergence of finance and IT to achieve financial innovation and provide better financial services to consumers," and "They are also expected to contribute to revitalizing the mid-interest loan market and supporting financially marginalized groups."

Entry was restricted for manufacturing and financial companies affiliated with the top 30 conglomerates. Only IT-affiliated companies such as KT, Naver, and Daum Kakao were permitted to establish internet banks, with the intention that specialized IT companies pioneer the fintech market and stimulate competition in the existing financial sector.

Thus, in November 2015, K-Bank became the first in Korea to obtain a preliminary license and began operations on April 3, 2017. KakaoBank followed, launching on July 27, 2017. K-Bank presented a model combining IT and finance with participation from KT, Woori Bank, and NH Investment & Securities, while KakaoBank offered an IT-centered financial innovation model with participation from Kakao and Korea Investment Holdings.

Catfish Change the Financial Landscape... Promoting Interest Rate Competition

K-Bank and KakaoBank, which opened in April and July 2017 respectively, attracted over 40,000 and 240,000 subscribers on their first day of business. Financial consumers were enthusiastic about the 'bank in their hands.'

The strongest catfish effect was providing lower loan interest rates and higher deposit interest rates compared to commercial banks, triggering interest rate competition among existing banks. At the start of operations, K-Bank's 'Office Worker K Credit Loan' product was launched with a minimum interest rate of 2.73% per annum, about 2 percentage points lower than the then-average bank interest rate of 4.46%. Notably, this product enhanced customer convenience by collecting information such as National Health Insurance and National Pension without requiring separate document submissions. Additionally, K-Bank's main transaction preferential fixed deposit (with salary transfer and check card usage) offered a top interest rate of 2.6%, the highest among first-tier banks at the time.

Thanks to this, K-Bank achieved remarkable results in its first year, recording deposits of 1.0889 trillion KRW and loans of 855.9 billion KRW, more than double its initial target.

KakaoBank, which started operations in July of the same year, drew attention with its minus account loan interest rate as low as 2.86%, significantly lower than the 3-5% range of commercial banks' minus account loan rates at the time. Its deposit interest rate was also much higher at 2%, compared to the 1.3-1.6% offered by commercial banks for one-year fixed deposits. The fee-free checking account also gained tremendous popularity.

Armed with these groundbreaking benefits and the powerful Kakao platform, KakaoBank surpassed 1 million subscribers within five days of launch and exceeded 5 million within a year.

The arrival of strong catfish stimulated competition among banks. According to the Bank Federation as of July 2017, when KakaoBank began operations, the average interest rate on credit loans among 16 banks was 4.73%, down 0.12 percentage points from 4.85% the previous month.

Moreover, perfect non-face-to-face services greatly enhanced consumer convenience and accessibility. From their inception, K-Bank and KakaoBank enabled 100% non-face-to-face account opening and loan applications, eliminating the hassle of visiting bank branches and submitting various documents for loan screening. The entry of internet-only banks also significantly improved satisfaction with bank mobile banking applications.

Lee Byung-yoon, a research fellow at the Korea Institute of Finance, evaluated, "The emergence of internet-only banks has contributed to providing convenient services to financial consumers and increasing customer satisfaction with banking. In particular, since the launch of internet-only banks, the concentration of commercial banks in the household loan market has decreased, indicating that internet-only banks have contributed to strengthening market competition."