Internet banks attract consumers to switch loans

2024.02.13 14:21:01 | 2024.02.13 17:30:51

[Photo by Yonhap]이미지 확대

[Photo by Yonhap]

South Korea’s internet-only banks KakaoBank Corp. and K Bank attracted 572.2 billion won ($430.3 million) in mortgage loans through a platform that allows consumers to switch their plans in January, data showed on Monday.

The amount is nearly double the performance of the country’s five major commercial banks - KB Kookmin Bank, Shinhan Bank, Woori Bank, KEB Hana Bank, and NH Nonghyup Bank.

According to data from the Financial Services Commission (FSC), a total of 2,975 mortgage loans were transferred to KakaoBank and K Bank in January, while only 1,822 loans, amounting to 321.2 billion won, moved to the five major commercial banks. The average loan amount per person was also higher for internet banks at 192.34 million won compared with 176.29 million won for the five major commercial banks.

The mortgage loan switching platform, launched in January, allows consumers to easily compare and search for interest rates online and switch to a financial institution that offers lower rates.

It was expected from the beginning that internet banks would benefit from the service, as it is an online service specialized for online customers. Internet banks can allocate their resources to building convenient user interfaces (UI) and lowering interest rates since they do not have offline branches, reducing costs.

As the unexpected volume of mortgage loans has moved to internet banks from commercial banks, there is growing skepticism among commercial banks about face-to-face lending operations. “Commercial banks will likely increase non-face-to-face operations moving forward, diverting the cost savings into consumer interest rate reductions,” a banking industry insider said.

This development is also raising concerns for the future strategies of commercial banks.

Mortgage loans, especially those with a reliable collateral, are a product that banks want to attract. In this regard, losing customers who were attracted through offline operations to internet banks means traditional commercial banks lose the costs incurred in attracting those customers.

Internet banks are also expected to do much better in the lease loan switch service, which began on January 31. The mortgage loan switching rates for KakaoBank and K Bank are in the 3 percent range, while those for commercial banks are in the upper 3 percent to lower 4 percent range.

Commercial banks are now planning to adjust their loan business strategies. In a situation where face-to-face mortgage operations have significantly declined due to the widespread adoption of non-face-to-face services, there are already mounting calls in commercial banks to reduce face-to-face loan operations.

“If customers attracted through face-to-face operations are leaving for internet banks through the mortgage loan switching platform, commercial banks have no choice but to change their business strategies,” the banking industry insider said. “They will try to reduce the proportion of face-to-face operations as much as possible and follow the model of internet banks, which invest the saved costs into interest rate reductions.”

“From the perspective of commercial banks, they cannot simply reduce branches or stop face-to-face operations,” another industry insider said. “They will transform mortgage loans into non-face-to-face operations as well as develop more non-interest income products and strengthen corporate finance.”

By Park In-hye, Shin Yoo-geoung, and Yoon Yeon-hae

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