By AsiaToday reporter Lee Seon-yeong
Kakao Bank, South Korea's second internet-only bank that opened a month ago, is bringing the catfish effect in the local banking industry by drawing interest rates and commission cuts on traditional offline banks. It seemingly got off to a good start with anticipations that it will be a catalyst for the change in the financial sector. However, there are still challenges ahead for Kakao Bank, such as easing separation of banking and commerce and developing its risk management capability.
As of 7 a.m., Sunday, the bank had 3.07 million accounts created, while attracting 1.94 trillion won (US$1.73 billion) in deposits and savings and extending 1.40 trillion won (US$1.25 billion) in loans, according to the bank. More than 2.16 million debit cards have been issued.
The competitive edge of the bank lies in its rapid opening of accounts, low loan rates, high deposit rates, and cheap overseas remittance fees. In particular, the intuitive design of its mobile app is improving accessibility for customers.
As Kakao Bank attracted more than 3 million customers, the existing banks are beginning to prepare countermeasures. Traditional banks are improving their mobile apps and expanding online services. Besides, they are lowering loan interest rate and commissions that had been unshakable, realizing the catfish effect in the local financial industry.
The launch of the internet-only bank has created many positive effects. For instance, it intensified competition among banks, which led to the improvement of services and eventually expanding customers' options. If the range of financial products that are currently limited to credit loans is expanded, it will accelerate the changes of the financial sector. Nevertheless, it should improve problems in its sales process, such as lending delays that caused inconvenience to customers.
The fact that the problem of easing the separation of industrial capital and banking is not solved is especially dragging down the bank's expansion of sales. Industrial capital can only hold up to 10% of bank stake. In order for IT companies such as Kakao Bank to take the lead in the management of the internet-only bank, it's necessary to ease the regulations on the entry of industrial capital into the banking industry. If the regulations are not eased, it will lead to business disruptions due to difficulty in expanding capital.
Kakao Bank loans grew rapidly, reaching over 1.5 trillion won (US$1.34 billion) in a month. As a result, the bank decided to increase its capital by issuing new stocks worth 500 billion won (US$500 million) to secure stability and reduce risk. Its capital has increased from 300 billion won (US$267 million) to 800 billion won (US$713 million), allowing to increase loan. However, it needs to ease the regulation on the separation of banking and commerce to expand its scope of business.
Kakao Bank needs to manage risks in a stable manner in order to get settled in the financial industry. It needs to resolve concerns about financial soundness due to soaring credit loans. An official from the financial sector said, "Risk management is very important for internet-only banks because they mainly handle credit loans. If risks are not properly managed, concerns over internet-only banks will inevitably grow."