South Korea’s financial regulator is to resume the process to select a new online-only bank here, hoping to announce the result by the year’s end, according to officials Monday.

The Financial Services Commission plans to announce later this month its plan to receive applications for business approval for an internet-only bank, officials said. The feasible timeline is to receive applications starting October and grant a preliminary license to one or more successful applicants by the end of the year.

In May this year, the regulator rejected the applications by two consortia to establish an internet-only bank, citing the lack of fundraising channels and technical progress. The two aspiring platforms, Toss Bank and Kiwoom Bank, were respectively led by Viva Republica, operator of mobile payment system Toss, and Kiwoom Securities, a midsized local brokerage that specializes in online stock trading.

The nation’s two incumbent internet banks -- K bank and Kakao Bank -- were launched in 2017, marking the first cases of bank operation without brick-and-mortar branches here.

 

On Friday, FSC Chairman Choi Jong-ku told reporters that the commission notified Viva Republica and Kiwoom of why their banking platform plans had been rejected.

“Should they reapply this time, the FSC will give them sufficient time to make up (for their earlier shortcomings),” Choi said.

Toss Bank initially suggested it would start with 250 billion won ($212 million) in capital and raise it up to 1.2 trillion won in three years -- a plan that triggered skepticism from the regulator as Viva Republica marked 44.5 billion won in net losses for fiscal 2018.

The consortium was also advised to fix its shareholding structure that became heavily reliant on main player Viva Republica after Shinhan Financial Group’s withdrawal.

Kiwoom Bank faced relatively fewer hurdles due to its diversity of business partners, including the nation’s top mobile carrier SK Telecom and e-commerce operator 11st Street. Its reason for rejection was the lack of innovative factors and detailed specifications on the business plan.

According to the new timeline, applicants will have an additional month of preparation period, compared from the earlier process in the first half of the year.

Once the preliminary process kicks off in October, the FSC will receive applications from aspiring business operators and review the submitted plans. Once the regulator approves of the shareholding structure and overall proposal, the final assessment is to be made by a special advisory committee comprising seven experts in law, finance, consumer market, financial technology, accounting, information technology and risk management.

In September last year, the National Assembly passed a bill to allow a nonfinancial firm to boost its stake in an internet-only bank up to 34 percent, in a legislative gesture to lower the market threshold for innovative IT players. The deregulation was also in line with the government’s continued efforts to revitalize the stalled economy by opening doors to new business sectors with growth momentum.

The previous ceiling -- 10 percent in general and 4 percent for voting stocks -- had been designed to prevent cash-abundant conglomerates from stepping into the financial sector and exploiting the banking business as a funding channel. The restriction, however, had been criticized for also discouraging technology firms from tapping the internet-only bank business.

By Bae Hyun-jung (tellme@heraldcorp.com)