Is license for 4th internet-only bank losing appeal?

Economic uncertainty casts doubt over profitability

By Lee Yeon-woo

Two of the six candidates competing to become the country’s fourth internet-only bank have recently withdrawn from the race, as growing economic uncertainties raise concerns over the profitability of the online-based banking business, according to industry officials.

Douzone Bizon, a local ICT solutions provider, said it will not apply for preliminary approval to establish the country's fourth internet-only bank. The company had planned to launch a specialized internet-only bank for small and medium-sized enterprises (SMEs) in collaboration with DB Insurance.

"Instead of pursuing a new business that could introduce short-term volatility, we have chosen to focus on maximizing the strengths of our existing business solutions," a Douzone Bizon official said.

Another challenger, the U-Bank Consortium, also announced that it is reassessing the timing of its application. The consortium's participants include ICT companies such as Naver Cloud, along with lifestyle companies like Hyundai Department Store. Hyundai Marine & Fire Insurance has also joined, while the Industrial Bank of Korea is considering joining.

"We have decided to reapply in the second half of this year when a significant portion of the uncertainties are expected to be resolved," the consortium stated.

Financial authorities have been working to introduce the fourth internet-only bank as a way to spur competition in what they characterize as the "oligopoly banking industry." Last November, they required the fourth internet-only bank to present a sufficient funding plan for SMEs and small businesses based outside of Seoul.

However, amid the economic downturn and the rise in loan delinquencies among small business owners, offering lending services specialized for this segment is increasingly seen as risky.

Even existing internet-only banks — KakaoBank, Toss Bank and Kbank — struggle in these areas due to the relatively high credit risk and the limitations of non-face-to-face operations, according to a report released by the Korea Institute of Finance in October.

"With 20 banks (including commercial and internet-only banks) already in operation, there are doubts [as to] whether securing an additional banking license would enable a viable and competitive business," an industry official said, requesting anonymity. "A loan portfolio heavily concentrated in regional areas would further hinder growth."

Currently, four consortia remain in the competition to create the fourth internet-only bank: Korea Soho Bank, Soso Bank, AMZ Bank and Podo Bank.

With the recent withdrawal of two candidates, industry officials believe Korea Soho Bank has become the strongest contender. The consortium is led by Korea Credit Data, which provides a management service used by 1.7 million small business owners.

Woori Bank, NH NongHyup Bank, Woori Card and Eugene Investment & Securities have confirmed their participation, while Hana Bank and BNK Busan Bank are considering whether to join.

Financial authorities have stated that the licensing process will proceed as planned.

The Financial Services Commission will accept preliminary license applications between March 25 and 26. The applications will then undergo a two- to three-month evaluation process, including a review by an independent external committee. A decision on preliminary approval is expected in the first half of this year at the earliest.