The big five banks‘ logos [Photo by MK DB]
South Korea is moving toward introducing intermediary platforms for both loan and deposit products to help customers review and compare products at different banks as the government is looking into measures to break up the oligopoly led by the country’s top five lenders.
These moves come as the presidential office and financial authorities have designated interest margins as the most significant problem in the loan/deposit markets mostly controlled by the big five banks. Currently, those five eat up more than 80 percent of the banking market share. Authorities are hoping that intermediary platforms could disrupt their dominance in the markets.
Competition among banks will bring benefits to customers, including lower interest rates on loans and higher interest rates on deposits.
Shinhan Bank announced Thursday that it will launch an intermediary platform for loans in June. The bank plans to link its services with the refinancing platform run by the Financial Services Commission (FSC) from May. Having been officially designated as an “innovative financial service provider” with its online deposit intermediary platforms that have available since November, the bank has also been proactive in developing these services for loans. When launched, Shinhan‘s intermediary platform will be the first among the major banks.
Pressure from the president is leading to not only intermediary platforms, but also a range of measures to disrupt the cartel of the top five banks. President Yoon Suk-yeol has strongly pushed the government to deal with the market dominance by a few players in the financial sector.
According to the president’s office on Thursday, Yoon highlighted his push for disruption among the privileged and advantaged corporations for the public during a meeting with economic branches of the government that took the day before. Yoon asked specifically for the government to come up with policies that will help to ease some of the public’s burden.
A successful loan intermediary platform would inevitably require participation from as many financial institutions as possible. So far, about 50 to 60 institutions are willing to provide information concerning their loan interest rates, which is promising in terms of developing much-wanted competition in the market.
Entry of new players into the loan intermediary platform market would also bring down some fees, from the current level of around 1.8 percent, authorities estimate. Currently, only fintech companies have been providing loan intermediary platform services.
[Photo provided by Toss]
“About 50 to 60 financial institutions have expressed their intention to providing their products to the upcoming refinancing platform,” an official at the Financial Services Commission. “Banks, savings banks, credit card companies and capital companies will participate and that will bring about healthy competition.” The refinancing platform will begin with credit loans and then expand into other categories.
The financial authority expects to see more number of intermediary platform service providers, including those for refinancing. At present, those platforms are dominated by the so-called big three tech companies, including Viva Republica Inc.’s Toss, Naver Financial Corp. and Kakaopay Corp.
Beginning in the first half, however, institutions, including Shinhan Bank, will join as the authority will allow for any MyData service provider to start offering the product. The authority is projecting there will be about 20 intermediary platforms in the market, among which competition may pressure them to lower their fees.
The FSC will begin a pilot service with online deposit intermediary platforms sometime in the first half. In November, the regulator designated eight financial businesses, including Naver Financial and Shinhan Bank, as “innovative financial service providers” for the online platform-based deposit products to allow them provide recommendations and comparisons of different products. There will be a limit on the amount that can raised through intermediary services to prevent a sudden rush for deposits into specific institutions.
Other financial sectors are watching the moves by authorities and other players. On Thursday, executives of insurance companies met with the Financial Supervisory Service, as the industry is concerned about being a target for criticisms against the overall financial sector. Internet banks and savings banks are also monitoring authorities on whether a new online bank and some “specialized” small banks will be approved to start operations.
By Han Woo-ram, Shin Chan-ok, and Chang Iou-chung
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]