Online-only lender Toss Bank commences operation

The country’s third internet-only lender Toss Bank is slated to begin operation Tuesday, heating up the competition in the fast-growing online banking market, according to industry sources Monday.

The lender, controlled by Viva Republica, the operator of fintech app Toss, will start its banking services, including offering credit loans, savings and deposits, with a primary focus on expanding mid-range interest rate loans. 

Earlier in June, when the online bank received a final approval from the Financial Services Commission for business operation, the lender vowed to extend more than 30 percent of its credit loans to borrowers with low to moderate credit scores like young people and small-business owners by the end of this year.

The country’s first and second online lenders -- Kakao Bank and K bank, which were established in 2016 with the purpose of offering mid-interest-rate products, also announced they would expand the proportion of the mid-interest-rate products to 20.8 percent and 21.5 percent, respectively. 

Ahead of its launch, Toss Bank has set its minimum interest rate on credit loans at 2.76 percent per year, the lowest among commercial banks. The average interest rate charged on credit loans offered by major commercial banks here have hovered between 3-4 percent in recent months. 

A growing number of loan seekers are likely to flock to Toss Bank for the time being as commercial banks have tightened rules over extending personal loans, having come under pressure from financial authorities seeking to rein in the nation’s snowballing household debt, industry sources said. 

The regulator earlier this year urged local banks to limit the annual growth of their loans to 5 percent. The annual loan growth target, however, doesn’t not apply to online-only lenders like Toss Bank. But subject to the authority’s suggestion to keep the maximum amount of credit loans allowed for individuals below their annual earnings, the new online bank has implemented the maximum loan limit at 270 million won ($228,420). The borrowing limit for credit loans via overdraft accounts at Toss Bank will be around 100 million won.

By Choi Jae-hee (cjh@heraldcorp.com)