[10 Years of In-Bank] ③ The 4th In-Bank, the Emergence of a New Megi... Will It Overcome the Limits?

Korea Soho Bank Solidifies Its Dominance
Stricter Evaluation Criteria Become a Key Variable
Some Predict No License Will Be Granted If Screening Requirements Are Not Met

The introduction of internet banks to promote innovation and competition in the financial industry has raised the need for a 4th internet bank as they have failed to demonstrate differentiation from existing banks. In particular, as internet banks have not practiced inclusive finance for medium- and low-credit borrowers and small business owners, the scoring for inclusiveness in evaluation criteria was increased by 50 points compared to the previous period, resulting in stricter standards. Consequently, as some consortia withdrew or postponed participation ahead of the preliminary licensing application, attention is focused on whether the 4th internet bank can successfully establish itself.

Examining the Four Consortia Throwing Their Hats in the Ring for the 4th Internet Bank

The Financial Services Commission received preliminary license applications for the 4th internet bank from March 25 to 26, with a total of four consortia submitting applications. These are Korea Soho Bank, Soso Bank, Podo Bank, and AMZ Bank.

Looking at the four consortia that applied for the preliminary license, the Korea Soho Bank consortium led by Korea Credit Data (KCD) is solidifying its dominant position. This is due to the withdrawal of strong candidates ahead of the preliminary license application. The Korea Soho Bank consortium secured major financial shareholders including five banks?Hana Bank, Woori Bank, NH Nonghyup Bank, BNK Busan Bank, OK Savings Bank?as well as Eugene Investment & Securities and Woori Card, overwhelming competitors in terms of funding.

Soso Bank is a collaboration between Kyongnam Bank in the banking sector and the National Federation of Small Business Owners (minority shareholder coalition) and small businesses. Podo Bank appears to be led by corporations and Meritz Financial. AMZ Bank did not submit its shareholder composition status.

Stricter Evaluation Criteria... "Overcome the Limitations of Existing Internet Banks"

The evaluation criteria and scoring for the 4th internet bank preliminary license, disclosed by the financial authorities, consist of a total of 1,000 points divided into innovation (350 points), inclusiveness (200 points), stability (200 points), capital and funding plans (150 points), major shareholder and shareholder composition plans (50 points), and workforce acquisition plans (50 points).

Compared to the evaluations during the licensing of K Bank and Kakao Bank in 2015 and Toss Bank in 2019, the scoring for capital and funding plans and inclusiveness in the business plan has increased. Capital and funding plans were scored 100 points in both 2015 and 2019 but have been raised to 150 points this time. Inclusiveness increased from 140 points in 2015 to 150 points in 2019, and now to 200 points.

Notably, a funding supply plan for regional companies (non-capital area small and medium enterprises) and small business owners has been newly established for the first time. Accordingly, there is speculation that failure to meet these stricter screening requirements, such as funding plans for non-capital area SMEs, could result in no license being granted at all. Unlike the previous internet bank licensing, which stated that 'two or fewer companies' would be newly licensed, there was no mention of the number of licenses this time.

The Financial Services Commission stated, "Along with legal requirements, we plan to evaluate based on the stability of funding, innovation of business plans, inclusiveness, and feasibility."

The Financial Services Commission plans to decide on the preliminary license by June after reviews by a private external evaluation committee and the Financial Supervisory Service. Businesses that receive preliminary licenses can apply for the full license by meeting personnel and material requirements with the Financial Services Commission. After receiving the full license, they must commence operations within six months.

To overcome the limitations of existing internet banks, it is pointed out that establishing a differentiated credit evaluation system and the major shareholder’s funding capability must be especially emphasized for the 4th internet bank.

Lee Su-jin, a research fellow at the Korea Institute of Finance, said, "There needs to be greater emphasis on establishing and implementing a differentiated credit evaluation system, the major shareholder’s funding ability and role, and soundness management capabilities. Especially, the consortia pushing for the 4th internet bank aim to specialize in financing for small business owners and SMEs, which have high credit risk and face difficulties in handling due to the limitations of non-face-to-face methods in existing internet banks. Therefore, the validity of the business plan and the major shareholder’s funding capability are essential factors," she emphasized.