Illustration by Son Min-kyun.

Korea's internet specialized bank has taken its first step toward overseas expansion. A consortium involving KakaoBank has obtained a virtual bank license in Thailand, paving the way for overseas business. Following KakaoBank, Toss Bank has also declared its intention to target the overseas market, marking a new phase in the competition among internet banks. However, the low recognition of Korean internet banks and business restrictions due to domestic regulations remain significant challenges.

According to the financial sector on the 23rd, the Ministry of Finance and the Central Bank of Thailand selected the consortium led by Thai financial holding SCBX, which includes KakaoBank, as the final business operator for the virtual bank on the 19th. The virtual bank in Thailand is similar to Korean internet banks, being an institution that does not operate offline branches. The virtual bank corporation will be established in the third quarter of this year and is expected to commence full operations in the second half of next year. KakaoBank will secure more than 20% equity in the virtual bank, becoming the second-largest shareholder after SCBX.

KakaoBank's participation in the Thai virtual bank is the first case of a domestic internet bank directly engaging in overseas business. Previously, KakaoBank invested 10% equity in Indonesia's Super Bank; however, its involvement was limited to indirect participation such as technical consulting. In contrast, KakaoBank plans to take the lead in application (app) development and participate in financial product development in the Thai virtual bank business.

In June 2023, KakaoBank and SCBX of Thailand announce their collaboration on a virtual banking consortium in Thailand. The photo shows Yoon Ho-young, CEO of KakaoBank (left), and Arsid Nandawidaya, CEO of SCBX (right). /Courtesy of SCBX

KakaoBank's operations in the Thai virtual bank serve as a signal for overseas expansion for domestic internet banks. Toss Bank has officially declared that it will enter overseas markets within the next 3 to 5 years. Unlike domestic financial companies that are focusing on Southeast Asian markets, Toss Bank is also considering advanced financial countries as options. Last month, Lee Eun-mi, the CEO of Toss Bank, and executives visited Silicon Valley, USA, to meet with local financial companies.

To establish themselves in the global market, internet banks must first improve their recognition. The overseas expansion of Korean internet banks has been relatively late compared to those of other countries. The British bank Revolut expanded into the global market in 2019 and currently has 50 million customers. Japan's Seven Bank is pursuing a strategy of expanding through automated teller machines (ATMs) by acquiring a local ATM installation company in the United States in 2012. Last year, Seven Bank installed over 16,000 ATMs worldwide. In comparison, the presence of Korean internet banks, which have just begun their overseas expansion, is understandably weak.

Additionally, domestic regulations are factors that slow down the growth of scale. Under current law, internet banks cannot handle loans or credit guarantees for corporations, excluding small and medium-sized enterprises. Even if they set up a company abroad, the path to financial support through loans is blocked. From the perspective of internet banks, they have no choice but to opt for equity investment over the more direct route of loans. Yeon Jeong, a professor at Chung-Ang University, noted, "The loan supply process is simpler compared to equity investment and does not conflict with local governance regulations," adding that "there is a need to discuss exploring options for overseas expansion through credit offering."