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Bank in Your Hand: Revolution or Repetition?
[387호] 2017년 09월 06일 (수) Reporter Il-bong Lee leeib@

Last Apr. 3, the first Korean Internet bank, “K-bank” started its operation. Consequently, last July, Kakao bank also launched the second Internet bank. Those two opened a new chapter in the Korean banking industry. Internet bank started its path at the end of 2015. A total of three candidates volunteered, and two of them, Kakao for Kakao bank and KT for K-bank were selected.     
What makes the Internet bank so different? They pursue simple procedures for making bank accounts and getting a loan. When you open a new bank account, you scan your identity card and take a video call with the head office. They do not operate offline branches in every town. Since the Internet banks focus on mobile and online banking systems, they have less offline branches. Instead, they run a few symbolic main offline banks. By reducing these operation costs, Internet banks could provide better services. For instance, Internet banks advertise their higher interest rate and zero transaction fees for ATM banking and transferring funds to other banks. Their transaction fees in sending money abroad is about 10% of ordinary banks. This is the strength of the Internet bank. In the case of Kakao bank, they will continue this service at least until the end of the year 2017, and will announce if they will stop the service.
On the other hand, Internet banks still have a lot of obstacles to deal with. Ordinary banks make money by borrowing and depositing money. Experts point out that this basic profit structure for banks has not been changed for the Internet bank. That is, they have no specialty except for simple procedures. Experts believe that the Internet banks should create their distinct profit model.  Simplified procedures also received criticism because it causes security problems and indiscriminate loans to the middle classes. Besides, there remains a huge obstacle, which is the industry-bank separation policy. The current law regulates the stake of a parent company. It allows retaining 10% of total stock, and only 4% of them are allowed to influence in the stakeholders’ meeting. That’s why Kakao and KT retain less than 10% stock of their bank. This inhibits the leading role of parent companies in bank expansion. Some experts point out that the law should be relaxed to help the successful landing of the Internet banks.
Ordinary banks and experts did not expect the Internet banks to succeed. However, Kakao bank and K-bank have both shown remarkable results especially in loan amounts. Namely, Kakao bank attracted more than two million new customers, and its cumulative loan amount exceeded 800 billion KRW within 15 days after it initiated its operation. However, as mentioned above, Internet banks have a long way to go. People are paying attention to how the appearance of the Internet bank will affect the financial scene. Will it be a revolution or just a vain repetition? In the meantime, financial authorities are now planning the introduction of the third Internet bank in Korea.

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