Toss reapplies for Korea virtual banking license

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Korea's Financial Services Commission (FSC) surprised some observers by rejecting all of the applicants for a virtual banking license earlier this year. The FSC had different reasons for saying no to the applicants. In the case of Toss, a peer-to-peer money transfer app owned by Korean fintech unicorn Viva Republica, the FSC worried about the ownership structure of Toss Bank and its funding capabilities.

The Korean financial regulator is not known as one of Asia's most fintech friendly, even though it is gradually allowing fintechs room to grow. That's why it makes sense for Toss Bank to team up with a big financial services incumbent: Show the FSC that "fin" is in the driver's seat, not "tech." In mid-October, Korea media reported that Standard Chartered Bank Korea had joined Toss's consortium, although with only a single-digit stake.

Still, with the British bank's participation, there are a large number of traditional finance firms in the consortium. In contrast, the only major tech company is Viva Republica, which holds a 34% stake. That's the largest of any single company overall, but down from over 60% when Toss first applied for an internet banking license in May. By reducing Viva Republica's stake by 26%, the company has restructured its shareholders in a way that should help to assuage the FSC's concerns.

Two non-financial services entities, Korea Federation of SMEs and retailer E-land World, each hold 10%, as does KEB Hana Bank and Hanwha Investment & Securities. Welcome Savings Bank and security information technology firm Crosscert also hold a single-digit stake in Toss Bank. Other shareholders include Crosscert, Altos Ventures, Goodwater Capital and Ribbit Capital.

With its shareholding structure reshuffled, Toss Bank now needs to make sure its fundraising plan is feasible. In May, Toss said that it would more than quadruple its existing 250 billion won in capital to 1.2 trillion won in three years. The FSC pointed out that Toss had lost 44.5 billion won in 2018, implying that a company so deep in the red may not easily raise such a large sum of money. Big losses incurred by  Europe's largest challenger banks have not deterred their backers from doubling down, but such an argument is unlikely to persuade the conservative FSC.

Analysts say that Toss Bank has a better chance of being approved for a virtual banking license this time around. On the one hand, the regulator has struck a determined note. “The business license for a new internet-only bank is the FSC’s top priority task for the second half of the year,” FSC Chairman Eun Sung-soo said in October.

At the same time, Toss Bank doesn't have much strong competition. Daou Kiwoom Group, also rejected by the FSC earlier this year, has confirmed it will not submit a new application for a virtual banking license. Kiwoom's decision is not surprising given that its former backer KEB Hana Bank recently switched over to the Toss consortium, analysts say.