SEOUL, Oct. 16 (Korea Bizwire) – Recently, online banks have been striving to attract more depositors by offering unique savings accounts. These accounts include options like “idol support passbooks” and “group savings accounts for managing contributions.”
Low-cost deposits typically refer to accounts like money market deposit accounts (MMDAs), often known as “free deposit and withdrawal” accounts, which offer very low interest rates, sometimes as low as 0.1 percent.
Among online banks, Kakao Bank, a prominent player, has been rapidly expanding its customer base by encouraging individuals to invest in these low-cost accounts as they are user-friendly and convenient.
In the second quarter of this year, Kakao Bank held 25 trillion Korean won in low-cost deposit accounts, constituting 57.4 percent of its total funds (amounting to 43.6 trillion Korean won). This figure is 18 percentage points higher than the industry average of 39.4 percent.
Kakao Bank is leading the way with its innovative banking products. Meanwhile, Toss Bank and K-Bank are also endeavoring to attract savers by introducing appealing passbook products such as “idol support passbooks” and “group savings accounts for managing contributions.”
On October 12, Toss Bank launched a new service called the “Deokjil-hagi together service,” which revolves around saving while supporting your favorite idols. This functions like a passbook that sets aside a specific amount of money whenever your chosen celebrity, like an idol or an athlete, achieves a particular milestone.
Within Toss Bank’s group accounts, you can save money collectively and share your savings with others, rather than doing it individually. The account offers an annual interest rate of 2 percent, and you can instantly share the pictures and messages you place in your savings account space with fellow fans in the idol’s support space.
The primary reason for online banks to introduce these products is to accumulate more low-cost deposits. These deposits encompass demand deposits and MMDAs, offering interest rates as low as 0.1 percent annually. In contrast, major commercial banks provide substantially higher interest rates on time deposits, around 4 percent.
Banks utilize time deposits, bank bonds, and other financial instruments to secure funds for household and business loans. Acquiring more low-cost deposits, which yield lower interest, improves the banks’ profitability by widening the gap between deposit and loan interest rates.
Moreover, these distinctive passbooks serve as an effective tool for customer acquisition. For instance, the “idol cheer passbook” connects with younger generations by integrating idol culture into the banking experience, potentially attracting future customers, especially from the MZ generation (those born between the early 1980s and early 2000s).
Group passbooks offer the benefit of shared use among multiple individuals, enabling banks to acquire multiple customers simultaneously. Furthermore, once individuals start using a shared passbook, they are less likely to switch to another banking service.
However, there has been a revelation that online banks, including Kakao Bank, are generating substantial profits from mortgage loans while losing sight of their initial objective to provide loans to low- and middle-income individuals.
According to data from the Financial Supervisory Service, in the first half of this year, 34 percent of Kakao Bank’s total interest income came from mortgage interest. This represents a significant increase from the 12.8 percent recorded in the first half of 2020.
On the contrary, interest income from loans extended to low- and middle-income borrowers has declined. During the first half of this year, interest income from mortgage loans was 2.4 times higher than interest income from low- and middle-income credit loans.
Some individuals have criticized online banks for concentrating heavily on mortgage loans, which are less risky and more profitable, instead of adhering to their original mission of providing loans to low- and middle-income clients.
Kevin Lee (kevinlee@koreabizwire.com)
