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Banking and finance

Toss Bank to compete with K Bank, Kakao Bank from September

The new internet-only bank will focus on providing loans to those with credit ratings below the 50th percentile

By Jun 11, 2021 (Gmt+09:00)

Toss Bank CEO Hong Min-taek
Toss Bank CEO Hong Min-taek

Toss Bank in September will enter the race of internet-only banks in South Korea as the third player, competing against K Bank and Kakao Bank. Toss Bank’s two rivals were both formed in 2017.

Toss Bank got the nod from the country’s top financial regulator Financial Services Commission (FSC) on June 9, about four months after its operator Viva Republica Inc. filed for authorization in February.

Viva Republica is the creator and the operator of Korea’s leading digital wallet and money transfer platform Toss, which boasts over 20 million users.

Viva Republica owns 34% of the to-be-launched Toss Bank. Other five major shareholders include Hana Bank, Standard Chartered Bank Korea, Korea Federation of SMEs (KBIZ), E-Land Group and Hanwha Investment & Securities Co., each of which holds a 10% stake in the internet-only bank.

Welcome Savings Bank Co. also holds 5% of Toss Bank’s shares.

TOSS BANK’S MARKET POSITIONING

The new internet-only bank will focus on mid-range interest loans targeting borrowers with lower credit ratings. According to Toss Bank, more than 80% of the people who applied for credit loans last year in Korea were those with credit ratings beneath the 50th percentile.

Toss Bank plans to extend 34.9% of its total loans this year to those with credit ratings under the 50th percentile, and raise the portion to 44% by the end of 2023.

“We plan to provide financial access even to those who were denied loans just because they did not have previous transaction records,” said Toss Bank CEO Hong Min-taek.

Toss Bank also differentiates itself with a one-app strategy, meaning the service will run under the same Toss app, unlike its main rival Kakao Bank that operates under a separate mobile app from the KakaoTalk messenger used by almost everyone in Korea.

The existing Toss app already provides Toss Securities for stock market investment as well as Toss Insurance services. Toss Securities was launched in March and has already drawn more than 3 million active trading accounts.

Sources report that the new bank will also file for credit card business approval, based on the large amount of financial data accumulated from operating the money transfer app Toss.

“Over the past six years, Toss has accumulated the biggest amount of financial data in the financial industry, more than all banking and non-banking players. We also plan to utilize the non-financial data collected in the telecom sector to provide financial access to those in need,” said Toss Bank CEO.

Toss Bank is also recruiting aggressively. It has posted job notices for 71 functions, including credit management, credit card issuing and data analysis.

Toss Bank currently has 140 employees and targets to increase this to 180 prior to its official launch in September. The bank said it will maintain 45% of its talent pool as software developers.

“Toss Bank will provide answers and solutions to questions such as: Why do some people have to go to non-banking financial companies to get loans? and Why are all the banks so similar to each other?” said Hong.  

MIXED PROSPECTS ON TOSS BANK

Industry watchers say that the key strengths of the existing Toss app, namely accessibility and super-convenience, will also help Toss Bank maintain competitiveness against traditional banking players.

They note that the popularity of Toss as one of the most-used online platforms in the country is another competitive edge.  

“We have 20 million users on Toss. It means our marketing costs for attracting new customers can be minimized,” Hong said.

But on the other hand, Toss Bank’s business areas will include savings, check cards, loans for small and medium-sized enterprises as well as housing loans, which to a large degree overlap with those operated by the giant banks in the country.

Plus, like any other internet-only bank, Toss Bank’s primary challenge is growing its assets and capital. Toss will launch with an aggregate capital of only 250 billion ($225 million) won, compared to Kakao Bank and K Bank, which have secured more than 2 trillion won ($1.8 billion) each.

In contrast, KB Financial Group, the largest banking group in Korea, has more than 30 trillion won ($27 billion) in capital.

KB’s total assets also amount to 447.8 trillion won ($403 billion) as of the first quarter of 2021, compared to Kakao Bank’s 26.5 trillion won ($23.9 billion) and K Bank’s 9.4 trillion won ($8.5 billion won).

Such a discrepancy has raised concerns in the traditional banking sector on whether the internet-only banks, including Toss Bank, will succeed.

“The key success factor in the banking industry depends on how good the bank is in stably managing loans. While Toss has proven it can draw millions of customers, its ability to manage assets just like the banks is yet to be confirmed,” said the CEO of a major bank in Korea.  

Write to Jin-woo Park, So-ram Jung and Dae-hun Kim at jwp@hankyung.com

Daniel Cho edited this article.

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