Prospects for new internet banks in Korea grim as Naver, Interpark drop out

Prospects of the launch of a new online-only bank in South Korea were dampened this week, as major information and communication technology companies retracted their intentions to enter the banking business.

Naver and Interpark -- two major Korean ICT firms widely expected to participate -- each recently confirmed they will not be seeking a permit to operate an internet-only bank here.

E-commerce operator Interpark said it decided against joining the internet banking business to “focus on its main online shopping business.” Internet portal Naver, which had once considered the possibility, said it will not move to launch an internet-only bank in Korea.

“Korea’s internet banking environment is already advanced, while first-generation internet-only banks, K bank and Kakao Bank, are also currently doing very well in the business,” Naver said in a statement.

“After a careful review as to the type of competitive edge Naver could have in the internet bank business, we decided not to join in,” it said.

Instead, Naver’s mobile messaging unit Line will continue to work with its partnered banks in Japan and Taiwan to launch internet-only banks in those two countries, where business conditions are starkly different, a company spokesperson said.

News of Naver and Interpark’s pullout came following a change in local banking regulations that would allow nonfinancial institutions to own and operate online banks that took effect on Thursday.

The new law, designed to ease ownership rules for internet-only banks, enables ICT companies to own up to 34 percent of an internet-only bank, up from the 4 percent (10 percent without voting rights) threshold stipulated by Korea’s Banking Act.

This had meant ICT companies could operate new internet-only banks, while Kakao and KT could now increase their stakes in their respective banks to become bigger shareholders.

Industry watchers attribute the companies’ lukewarm interest in the internet-only banking business to still-strict regulations that limit the sector’s growth potential.

Since their launch in 2017, Kakao Bank and K bank have yet to find a solid profit model aside from earnings gained through standard deposits and loans.

The Financial Services Commission plans to hold an explanatory session for firms interested in the internet-only bank business Wednesday.

The financial regulator will receive registration for new internet-only banks in February or March, and hand out permits before June this year.

By Sohn Ji-young (jys@heraldcorp.com)