Toss Bank just reached profitability

Written by Kapronasia || December 13 2023

There is something about digital banks in South Korea. Just like most incumbent banks – and unlike many of their digital peers – they tend to be profitable. Toss Bank, the digital banking unit of fintech unicorn Viva Republica, is no exception to the rule. In the July to September period, it recorded its first profitable quarter, which means that all three of the country’s digital lenders, which also include Kakao Bank and K Bank, are now moneymakers.

In the third quarter, Toss it posted a net profit of 8.6 billion won (US$6.65 million) compared to a loss of 10.5 billion won in the second quarter. The company attributed the swing to profitability to increased interest revenue, which rose to 391.8 billion won in the third quarter, more than tripling from 116.2 billion won during the third quarter of 2022. Additionally, Toss's loan balance reached 11.18 trillion won and its deposits 22.68 trillion won.

What impresses us about Toss is the speed at which it reached profitability. To be sure, Viva Republica has been around since 2015 and so when its digibanking unit launched in October 2021 it had a large potential customer base – 15 million monthly active users – waiting in the wings. But customer numbers do not necessarily equate with profitability. Indeed, in a short period of time, Toss has managed to develop highly competitive products and without the built-in advantages of Kakao’s massive digital services ecosystem or K Bank’s tie-up with crypto exchange Upbit. Nor has Toss yet been granted permission to offer lucrative mortgage loans – which Kakao and K Bank are both leaning into at the moment.

For instance, earlier this year, Toss launched a joint deposit account product called the "gathering passbook," through which a group of people can jointly manage a shared account. The product allows every registered member of a joint account the same access and rights to a deposit account ― including cash withdrawals, deposits and payment settlement. Every member can also get their own debit card for the shared account.

Toss Bank has also cultivated a strong market niche among customers with medium and low credit. As of June, medium- and low-credit borrowers accounted for 38.5% of its loans, compared to 24% at K Bank and 27% at Kakao Bank. Despite focusing on this somewhat risky demographic, Toss’s overall credit loan delinquency rate was just 1.58% as of September, below the average consumer loan delinquency rate in the U.S. of 2.36%.

That said, it seems that Toss may not achieve certain funding targets this year. In August, Tech Crunch reported that Toss was close to raising another US$154 million in equity at a valuation of US$2.1 billion and was already planning another US$150 million round for the end of the year. We will be interested to see how long it takes for Toss to secure new funding, which it will definitely want if it plans to go public in the next few years.