South Korean government said on Thursday it would relax its regulations - the separation of banking and commerce – in a bid to boost the fintech industry.
While most tech companies welcomed the announcement, some analysts have raised concerns about its practicality and the misuse of the system.
According to the plan unveiled on Thursday, the government would allow non-financial institutions to have up to 50 percent of banks’ stake, up from current 4 percent. This may help current Internet giants such as Naver and Daum Kakao to more easily make forays into the financial market. Companies, whose asset is more than 5 trillion won such as Samsung and Hyundai, will be excluded from the list. The top financial watchdog said it would give approvals to one to two companies this year.
Among information technology companies, Daum Kakao and KT have shown interests in jumping into the business.
Daum Kakao’s official said after the annoucement, “We are positive about the government’s latest plan and will make a preparation accordingly.”
However, there are still controversies about its effectiveness. Since Korea already has good infrastructure on digital banking services, the adoption of Internet Bank will not have much influence on the market and consumers, some market observers said.
Rather, this may lead already large tech companies to become much bigger and the largest shareholder may ill-use it as their private money.
Kim Ki-sik, a lawmaker of New Politics Alliance for Democracy said, “We oppose the setting up the Internet Bank which breaks the principal of the separation of bank and commerce," on the grounds that this may give too much power on tech companies.
Some financial firms are also showing some concerns as they haven’t yet been prepared to work together with tech companies. Financial analysts said the 50 percent proposed by the government is highly likely to be reduced, expecting there will be fierce a trial of strength. Passing the bill at the National Assembly is expected to be difficult.
Still, the latest plan is hailed by many others as it may touch off Korea’s still nascent fintech industry.
For starter, this may give an advantage to ordinary users as they do not have to visit banks in person. They can have financial transaction anywhere and anytime via their smartphones as Internet Bank do not need any bank branches. Though the number is decreasing, the number of bank branches in Korea stood at around 7,000 last year. Running around 1,000 banks costs quite much for commercial banks. But with the adoption of the system, banks can be freed from the cost and the cost saved can benefit bank users.
The government is expecting that this may boost mid interest rate for low-credit borrowers. As the mid-level interest rate is not common here, many poor people are struggling from high interest rate – more than 30 percent. Through this, mid-level interest rate – around 10 percent – is expected to take off as saving cost can lead to lowering interest rate, according to the government.
WeBank run by China’s largest online company Tencent is a good example. WeBank lends money to poor people who are not able to borrow money based on financial credit evaluation. They refer to more various information such as SNS, game activities as well as financial information by capitalizing on big data.
The success of Internet Bank are also already proved in some countries. French Internet Bank Hello Bank is a 100 percent mobile exclusive bank providing the entire banking services solely on mobile devices such as smartphone and tablets. In the U.S., Charles Schwab is well positioned itself as a bank providing customized online services managing assets according to an individual investor’s preference. In Japan, Rakuten bank makes money transaction fee free by specializing in payment system on online shopping malls.
