Licensing Criteria for New Internet-only Bank to Focus on Sustainability Based on Innovativeness and Inclusiveness

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Licensing Criteria for New Internet-only Bank to Focus on Sustainability Based on Innovativeness and Inclusiveness Nov 28, 2024

The Financial Services Commission adopted the licensing criteria and procedure for authorizing a new internet-only bank at the 20 th regular meeting of the FSC held on November 27, 2024.

Previously on July 5, 2023, the government introduced a plan to grant new licenses to more nationwide commercial banks, regional banks, and internet-only banks to promote competition in the banking industry. With regard to the criteria and procedure for licensing new internet-only banks, the government said that it plans to consider the performance and stability of the operation of the three existing internet-only banks along with the statutory requirements prescribed under the current law.

Since then, the government carried out an examination on the performance and effects of introducing internet-only banks and looked into areas where improvements are necessary. Meanwhile, a separate study was conducted on the competitiveness of financial companies’ SME and personal credit loan business operations to assess the areas where enhanced competition and increased supply of funds are needed.

Based on the findings from these studies, the FSC and the FSS (Financial Supervisory Service) adopted the licensing criteria and procedure for authorizing a new internet-only bank as follows.

The new licensing criteria will maintain the previously adopted licensing standards for internet-only banks, which include (a) the licensing criteria specified in the Banking Act and (b) the innovativeness and inclusiveness of applicant’s business plan. However, the key direction of application review and evaluation criteria will take into account the findings from the aforementioned studies.

In this regard, the evaluation of application will focus on (a) the stability in raising capital, along with (b) the innovativeness and (c) inclusiveness, and (d) the feasibility of business plan.

First, regarding the stability in raising capital, the evaluation committee will thoroughly look into whether the applicant has a sufficient level of capital to ensure a stable operation in the market while considering the capital levels of the existing three internet-only banks. In this regard, the evaluation committee will closely look into the shareholding capacity of its largest shareholder and the feasibility of raising funds according to the payment confirmations submitted by major shareholders.

Second, regarding the innovativeness of business plan, the evaluation committee will look into the innovativeness of applicant’s credit evaluation model, which will be used to supply credit to its main target customer groups. Moreover, the evaluation committee will examine whether the applicant can offer an innovative business model through distinctive method in the areas where existing financial models or services have yet to provide adequate solutions. In this regard, the evaluation committee will consider whether the applicant can actually make tangible contributions to the development of financial markets and the industry beyond merely introducing an innovative idea.

Third, regarding the inclusiveness of business plan, the evaluation committee will apply more rigorous standards to make sure that the new internet-only bank can meet the demand and serve the needs of the previously underserved groups and areas. Given this necessity, the evaluation committee will examine the applicant’s capacity for supplying not only microfinance assistance and mid-range interest rate loans but also its plan for supplying loans to distinguishable customer groups. Moreover, the evaluation committee will consider the applicant’s plan for supplying funds to small- and medium-sized enterprises (SMEs) operating outside the Seoul metropolitan area.

Lastly, the feasibility of business plan will be subject to close scrutiny even during the application review process. In order to ensure fairness and transparency of the licensing procedure, a technology assessment unit will be newly set up within the external evaluation committee to thoroughly check the appropriateness and feasibility of business plan and the viability of credit evaluation model. To make sure that the new entrant can faithfully observe its business plan after being authorized to operate an internet-only bank, the FSC plans to add a statutory condition under the Banking Act that allows the FSC to suspend a certain part (either ancillary or main business operation) of its banking business.

The registration of applications for preliminary approval will take place in the first quarter of next year. More specific details about the registration schedule will be determined and announced later after gathering comments from prospective applicants at the information session scheduled to be held in December. Once applications are submitted and reviewed by an external evaluation committee, the result of preliminary approval is expected to be announced in the first half of next year.

• Please refer to the attached PDF for details.

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