Regulator rejects Kiwoom, Toss internet banks

Financial Services Commission Chairman Choi Jong-ku announces the government's decision to reject Kiwoom and Viva Republica's internet bank proposals at a press conference in Seoul, Sunday. Yonhap

By Park Hyong-ki

The Financial Services Commission (FSC) has rejected applications for opening new internet banks from both Kiwoom Securities and Viva Republica, FSC Chairman Choi Jong-ku said Sunday.

The reasons given were Kiwoom's proposal for Kiwoom Bank was not innovative enough, and Viva's Toss Bank raised concerns over governance and financing.

"Kiwoom's business proposal wasn't economically viable and innovative. Viva has issues concerning its proposed bank's governance and capital structures," the chairman told the press.

"We will begin accepting additional applications in the third quarter of this year."

This came unexpected as Choi had signaled the FSC could select up to two applicants to launch internet banks here, after K bank and Kakao Bank.

He also said the regulator did not see Viva Republica, which runs the peer-to-peer Toss payment application, as a nonfinancial company.

The FSC's rejection means neither Kiwoom nor Viva will get the chance to further unveil their action plans at the Korea Federation of Banks this Tuesday.

If either of them had been chosen, they could have officially launched the third internet bank in January next year after the regulator checks and approves their network systems.

Daou Kiwoom Group, which owns Kiwoom Securities, the first online brokerage here, had been up against Viva Republica for the elusive approval.

Viva's consortium almost collapsed following Shinhan Financial Group's decision not to back Toss.

In March, Shinhan decided to back out of its partnership with Viva following a disagreement over Toss' business model. Hyundai Marine & Fire Insurance, Cafe24 and Korea Credit Data left the consortium as well.

Shinhan had wanted to create a bank that everyone can easily use, while Viva wanted a bank for low-income earners.

Kiwoom formed a consortium with KEB Hana Bank and SK Telecom, forging ties in various fields ranging from retail and video streaming to credit rating analysis and artificial intelligence.

Viva, meanwhile, attracted investors such as Altos Ventures and Goodwater Capital at the last minute to replace Shinhan Financial and Hyundai Marine.

The startup proposed to hold a majority 60 percent in the envisioned Toss Bank, which raised concerns over governance and capital structures.

Viva said its governance was suitable, and that it would not become "another bank," and could provide tailored services using its own credit model for small businesses and low-income earners.

Analysts say providing differentiated yet innovative services will be the key to standing out in the crowd of mobile banking applications.

"Future mobile banks will need to offer a niche service to set themselves apart from other banking applications," said Lee Tae-kyu, an analyst at Korea Economic Research Institute.

In March, three consortia submitted their applications for internet banking licenses.

A consortium called Anyband Smart Bank was rejected in early May due to lack of documents showing it had partners or capital to finance an internet bank.

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