Fintech growth poses 'limited threat to banks: Moody's

By Lee Kyung-min

Commercial banks in Korea will be able to maintain lead in online banking against budding fintechs which are more collaborators than competitors, Moody's Investors Service said Friday.

While some short-term, investment-induced profit margin deterioration is expected, the banks will see greater opportunities for new revenue sources due in part to cooperation in promoting a regulatory environment that will help diversify the payment channels of consumers, it added.

“Despite fast growth in the sector, we expect limited disruption to Korea's financial system from fintechs, as Korea's regulatory framework is focused on financial stability, consumer protection and the prevention of regulatory arbitrage,” the global credit ratings agency said in its report released Thursday.

Competition is inevitable in retail banking, but they will lead to new financial services, it added.

“Korea's regulatory framework promotes partnerships with banks over competition. Some competition will still arise in retail banking, straining profit, but will open up new revenue sources,” the report said.

Fintech developments will accelerate over the next year and a half, driven by new regulations promoting innovation, amid a growing pool of fintech companies and rising public expectations for improved financial services.

“Regulations promote partnerships between fintechs and existing financial institutions, focus on technologies that support the operation of existing institutions and prescribe a stringent process to screen virtual bank applicants,” it said.

The report recommended that external capital access is a key to potential growth for the country's two internet-only banks, because profit will remain low to reflect their competitive pricing strategy.

“The combined market share in loans of Kakao Bank and K bank accounts for only about 0.6 percent after around 18 months of operation, thus bringing brought only modest pricing competition.”