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Euromoney, October 4 2019 

Korea’s first two digital banks have had very different starts: one, kakaobank, is a clear success story; the other, K Bank, badly needs funding but is caught up in a problem around its would-be-biggest shareholder. Korea’s regulator is in it for the long haul and is inviting new digital banks to join them.

Digital banking in South Korea is a tale of mixed fortunes. Two such banks have been operational for the last two years.

One has become, by some measures, the most successful digital bank in the world. The other has made barely any inroads and is in a desperate battle for new funding. It is a curious environment into which a further two banks may be ushered later this year.

The story of these divergent outcomes starts in 2015, when the Financial Services Commission (FSC) of South Korea approved two new digital banks. One was kakaobank, owned by Korea Investment Holdings alongside Kakao Corp, KB Kookmin and Tencent; the other, K Bank, has shareholders including Woori Financial Group and KT Corp, the telecommunications leader, alongside China’s Ant Financial and the videogame developer Smilegate. There were big ambitions. At the time the FSC said it wanted the new banks to transform financial services in the country.

Both became operational within months of one another in 2017, but their experiences have been very different.

kakaobank crossed the 10 million customer mark at the remarkably precise moment of 10.25pm on July 11. At the end of June, it had W17.6 trillion ($14.7 billion) in deposits, and total outstanding loans of W11.3 trillion. These are some of the best numbers in any pure-play digital bank in the world. It has twice raised funds in considerable scale – a combined $1 billion from raisings in September 2017 and April 2018 – and it will probably list next year. It turned profitable in the first quarter.

K Bank, on the other hand, is struggling. It needs more capital and appeared to have a simple route to it: one of its shareholders, the telecoms group KT, wanted to expand its stake in the business from 10% to 34% following a change in the law. K Bank would have raised W592 billion from a rights issue to support it, a deal that should have happened in April.

But, instead, in an unrelated matter, Korea’s Fair Trade Commission fined all four of Korea’s big telecom-cable companies a combined W13.38 billion for collusion, with KT identified as the driving force, and referred the matter to the prosecutors for further action. That prompted the FSC to review KT’s application to up its stake in K Bank; it has said it will wait until the investigation concludes before reaching a judgement.

So, what does the regulator make of all this? At the FSC’s offices in Seoul, director Yoseop Jun presents Euromoney with a positive but honest view.

“Since the launch of the digital banks, one has been doing good and one has some capital problems,” says Jun. “But overall they have brought transformation and information to the banking sector and the financial system in general.

“The competition between digital banks is getting stronger, in particular to the conventional banks that were operating mainly based on physical branches. They are very much influenced by the innovative and new services launched by the digital banks. We think the digital banks are a great influence.”

So much so that in July the FSC announced it will approve one or two more.

Read the full article here:

Chris Wright
Chris Wright
Chris is a journalist specialising in business and financial journalism across Asia, Australia and the Middle East. He is Asia editor for Euromoney magazine and has written for publications including the Financial Times, Institutional Investor, Forbes, Asiamoney, the Australian Financial Review, Discovery Channel Magazine, Qantas: The Australian Way and BRW. He is the author of No More Worlds to Conquer, published by HarperCollins.

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