(EDITORIAL from Korea Times on Nov. 23)

For financial innovation
ICT capital comes to control internet-only bank

Kakao Corp., the operator of Korea's leading messenger app Kakao Talk, has emerged as the largest shareholder of an internet-only bank, Kakao Bank. This marked the first case of a non-financial firm becoming the biggest shareholder of a bank of any type ― conventional or online.

On Friday, Kakao Corp. bought a 16 percent stake in the internet-only bank from its major shareholder, Korea Investment Holdings. The purchase allowed the ICT firm to increase its stake in Kakao Bank to 34 percent, a maximum stake set by the internet-only bank law.

The law, which came into force in January, allows only information and communication technology (ICT) companies to own as much as 34 percent of an internet-only bank. Previously, any non-financial firm was not allowed to own voting shares of a bank in excess of 4 percent to prevent industrial capital from making inroads into the banking sector.

Kakao Corp. has become the first beneficiary of the expanded ceiling which enables ICT firms to introduce their technological innovations such as fintech into the banking industry. Along with the purchase, Kakao Bank has just completed the process of increasing its capital from the current 500 billion won ($447 million) to 1.8 trillion won ($1.5 billion).

Now, Kakao Corp. has succeeded in owning a controlling stake in the internet bank with an expanded capital base for its stable management. The question is whether the company can lead the way in innovating the banking sector by developing new financial technologies and products to provide better customer services.

Kakao Bank, the country's second internet-only bank, was set up in 2017. Since then it has rapidly gained popularity among young, mobile-savvy customers. The number of its customers has already surpassed 10 million. The bank enjoyed a profit for the first time in the first quarter of this year.

The internet bank has drawn a positive response from the market as it injected fresh air into the financial sector by adopting a set of innovative methods of easy and convenient opening of online accounts and financial transactions without using public certification of users. It has also collected very low rates of commissions on its services from customers.

Kakao Bank must double down on its financial innovation so that it can further differentiate itself from conventional banks. It should not focus on making money by taking advantage of interest margins. Instead, the bank needs to expand its financing for tech companies, particularly venture startups.

It is also important for regulators to create a new banking environment to promote fair competition and stimulate financial innovation. To that end, the government should speed up deregulation and encourage innovation. Equally important is to strength prudential regulations to ensure the sound development of not only traditional banks but also internet-based banks. Better protection of customers and better services are also imperative.
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