Pure internet banks are neither more competitive nor more innovative | Panda Anku

Chun Yeong-eun, an office worker, recently canceled her term deposit product at Kakao Bank and switched to a commercial bank financial product.

“I signed up for a term deposit with Kakao Bank because that’s the bank I use most, but I decided to switch to a commercial bank because of Kakao Bank’s low interest rates,” Chun said.

Internet bank customers are switching to commercial banks as traditional banks begin to introduce financial products with higher interest rates and Internet banks do not have a full range of services.

The interest rate on a one-year term deposit at Woori Bank is 3.6 percent, higher than Kakao Bank’s 3.1 percent. A Shinhan Bank term deposit has an interest rate of 3.4 percent, and one at Hana Bank pays 3.3 percent.

Some use both internet banks and commercial banks for different purposes.

“I started using Toss instead of other commercial banks, but I still use commercial banks for financial products like mortgage payments,” said Park Kyu-jin, a university student.

“It’s still a concern to deposit large amounts of money into internet banks, and because I’m one of the main customers in commercial banks, I get a lot of benefits.”

“Internet banks that have been operating for five years have no special core business that is different from existing commercial banks,” said Jun Sung-in, an economics professor at Hongik University.

“There are no particular reasons to use internet banks because they don’t offer better services or terms compared to other banks,” said Sung Tae-yoon, an economics professor at Yonsei University.

“Internet banks should increase their product competitiveness, and when they don’t, tax authorities should address the issue.”

Commercial banks are aggressively chasing users to increase their monthly active users (MAU) metric, a key index used to assess the competitiveness of internet banks.

Toss Bank has the highest MAU at 13.92 million, followed by Kakao Bank at 13.19 million and Kookmin Bank at 11.50 million, according to Mobile Index data on financial applications last month.

Commercial banks’ MAU is increasing faster compared to internet banks.

The figure for Kookmin Bank’s mobile app rose 12.9 percent year-on-year last month, compared to 1.7 percent for Kakao Bank and 0.2 percent for Toss.

The numbers raise the question of whether Internet banks have already reached their limits.

“There are definitely positive effects as internet banks have made the financial market more competitive, but it’s hard to say that they’ve actively improved convenience and driven digital innovation,” said Sung Tae-yoon.

“More than 80 percent of financial transactions were not made face-to-face before the Kakao Bank was launched,” said Lee Tae-kyu, research associate at the Korea Economic Research Institute (Keri).

“It’s acceptable to say it’s accelerated digital innovation, but it’s hard to say it’s caused a major shift in the banking industry.”

One of the main purposes of introducing these internet banks to the market was to provide credit systems for people with poor credit ratings. However, questions are raised as to whether these services have been successful in doing so.

Borrowers with high credit ratings accounted for 83.8 percent of Internet banks’ new borrowers in the first quarter of last year. Customers with a medium to low credit rating were 16.2 percent.

All three internet banks — Toss Bank, Kakao Bank and K Bank — failed to reach their target by the end of last year, which they proposed in the first half of last year.

“The tightening of lending to households last October had caused lending stalls, which may have prevented these banks from meeting their target,” said a spokesman for an internet bank.

“If Internet banks were leading the financial industry, commercial banks should have increased the percentage of loans to those with moderate to low credit ratings,” Jun Sung-in said.

The main reason that made Internet banks face the current crisis is that they are not very different from commercial banks.

Internet banks also rely on loan-to-deposit margins and offer products primarily focused on loan services. The total amount of loans from the three Internet banks increased by 18.9 percent, while savings and deposits increased by 33.9 percent in June compared to the end of last year.

But the combined assets of these banks are only 4 percent of the assets of Kookmin Bank, Shinhan Bank, Woori Bank and Hana Bank.

“Everything that internet banks offer can also be found in commercial banks and there is much more we can offer our customers including installment savings, funds and loans,” said a commercial bank spokesman.

“The Internet banks could not keep up with the commercial banks in asset management and company-related matters either.”

Another weakness is the credit check.

“It’s hard to say that credit ratings are being done properly when you look at Kakao Bank’s second-quarter net income,” said a banking industry spokesman.

“If the assessments had been done correctly, the bad debt allowance should have gone down, but instead it went up along with the loans to those with moderate to low credit ratings.”

New profit models and services to differentiate these internet banks from traditional banks are needed for internet banks to be competitive and viable.

“Internet banks should reduce costs by offering digital services, and use this to offer customers a wider range of services and better services,” Yonsei’s Sung said.

“Financial authorities should also consider ways that could help these internet banks differentiate themselves from other commercial banks.”

BY SHIN SU-MIN [cho.jungwoo1@joongang.co.kr]

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