Toss, Hana Bank tasked to explore new revenue streams

Toss Bank CEO Hong Min-taek, left, and Hana Bank CEO Park Sung-ho / Yonhap

Toss' executives assigned to differentiate business models

By Lee Min-hyung

Toss Bank, whose debut as an internet-only bank here appears to be on hold, is being urged to find new sources of money to stay afloat by teaming up with one of its largest investors ― Hana Bank.

The mobile banking subsidiary of the fintech firm will begin operations in September as the nation's third internet-only lender after receiving the green light from the financial authorities.

The finance industry is keeping an eye on the steady growth of Viva Republica, Toss's parent company, the pre-initial public offering (IPO) market valuation of which is estimated at 8 trillion won ($7.07 billion).

Toss is viewed as the most successful fintech startup after expanding its business area in only a few years after starting with mobile financial services. In March, the company launched brokerage subsidiary, Toss Securities, and plans to turn Toss Bank into another major cash-cow subsidiary by possibly listing the company in the next few years, just like its rivals, including KakaoBank which is in the final stages for an IPO in the latter half of the year.

But Toss Bank needs to find a differentiated business model if it wants to achieve sustainable growth. Sector leader KakaoBank has 16 million registered users, with runner-up K bank counting 6 million subscribers as of the end of June.

Both companies gain most of their revenue from loan-to-deposit margins, and their near-term business models overlap in that they focus on offering more medium-interest loans targeting customers with low credit ratings. The medium-interest loans here generally refer to those with an annual interest rate of around 6 percent to 10 percent.

An official from Toss Bank works at its office in Seoul, June 6. Yonhap

Toss Bank will also follow in the footsteps of its rivals after its debut. Early last month, Toss Bank CEO Hong Min-taek said he will build a loan portfolio by allocating 44 percent of its capital for medium-interest loans out of the total by the end of 2023.

But according to bank industry officials, this traditional strategy will not be enough for Toss to compete.

Viva Republica is the largest stakeholder in Toss Bank, and three other companies ― including Hana Bank ― each hold 10 percent stakes.

“Internet-only banks' services are narrowly focused, compared to conventional banks, so Toss Bank will make its platform as simple as possible,” a banking industry source said. “If the company is capable of operating a variety of services and delivering them in a user-friendly, simple manner, Toss Bank will be able to differentiate its platform from its rivals. The company also needs to keep in close touch with Hana Bank and other conventional banks with decades of know-how, in order to develop a medium- to longer-term business model.”

Toss Bank plans to push for a capital increase of 1 trillion won over the next five years to operate a stable loan service. The company also said it has no plans to launch an additional banking app, and will allow Toss's 20 million users to access its mobile banking services through its existing app under the “one-app strategy.”

KakaoBank, which started in 2017, teamed up with KB Kookmin Bank before its market debut ― the latter holds a 9.3 percent stake in the former. KakaoBank's success here stemmed partly from its partnership with KB, with senior digital executives from Kakao and KB joining a taskforce at KakaoBank before its launch.