South Korean policymakers and financial regulators are currently locked in a high-stakes debate over the potential launch of a fourth internet-only bank. While some political figures argue that a new digital lender is essential to bridge gaps in financial inclusion for small business owners and the underserved, financial authorities are urging extreme caution to avoid systemic instability.
The tension peaked during a National Assembly forum held on April 6, where lawmakers questioned whether the government should restart the licensing process for a fourth internet-only bank after a previous attempt ended in total failure. The discussion highlights a growing divide between the desire for disruptive innovation and the necessity of rigorous banking stability in a volatile economic climate.
At the heart of the debate is the question of whether existing financial institutions—including traditional banks and the three established internet-only banks (KakaoBank, Toss Bank, and K Bank)—are doing enough to support those often ignored by the traditional credit system. Proponents of a new bank argue that current lenders are too focused on household loans, leaving a void for small-scale entrepreneurs and startups.
The Political Push for a New Digital Lender
On April 6, a group of lawmakers, including Rep. Min Byung-deok, Rep. Lee Jeong-mun of the Democratic Party, Rep. Shin Jang-sik of the Rebuilding Korea Party, and Rep. Han Chang-min of the Social Democratic Party, convened a forum titled “Is the Restart of the Halted Fourth Internet Bank Necessary?” The goal was to address concerns regarding policy continuity and predictability after the previous licensing round failed to produce a single winner.
The lawmakers argued that there is a pressing need for a specialized bank that can focus on small business owners and the “financially marginalized.” They suggested that the existing banking landscape is heavily skewed toward household lending, which limits the availability of capital for the very sectors that drive grassroots economic growth.
Regulators Warn Against ‘Over-Banking’
Despite the political momentum, the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) have maintained a stance of prudence. During the forum, Park Sung-bin, an official from the FSC’s Banking Division, acknowledged the social demand for filling financial gaps but argued that existing institutions are already providing significant support.
To support this “cautionary” view, regulators pointed to data from the Bank of Korea. As of the end of the third quarter of last year, total loans to self-employed individuals reached 1,072.2 trillion KRW, with traditional banks supplying 643 trillion KRW, or approximately 60% of the total of the credit supply. The three existing internet-only banks have already exceeded the government’s recommended threshold, with their loan balances for medium-to-low credit borrowers surpassing 30% by the end of last year.
The regulatory concern is that simply increasing competition by adding another player could lead to “over-banking,” where the focus on growth outweighs the focus on risk management, potentially threatening the overall stability of the financial system.
Lessons from the September 2025 Setback
The current hesitation is deeply rooted in the failures of the previous licensing attempt. In September 2025, the FSC decided not to grant a preliminary license to any of the four applying consortia due to insufficient capital, lack of business sustainability, and safety concerns.
Regulators emphasized that while “innovation” is a key goal, the ability to actually operate a bank—specifically the ability to manage risks and maintain capital adequacy—is paramount. The failure of the 2025 applicants served as a warning that high-concept business models cannot replace the fundamental requirements of banking stability.
The Stability vs. Innovation Dilemma
Academic experts participating in the discussions have echoed the regulators’ concerns, particularly regarding the “deposit base.” A bank’s ability to lend depends on its ability to attract and maintain deposits (수신). Experts warned that a new internet bank focusing on high-risk borrowers, such as startups or vulnerable small business owners, might struggle to secure a stable deposit base, making it overly reliant on volatile funding sources.
There is too the concern of “asset quality.” With a focus on medium-to-low credit holders, a fourth bank would be inherently exposed to higher default rates. Without a proven track record of risk management, such an institution could quickly become a liability rather than an asset to the financial ecosystem.
Key Considerations for the Fourth Internet Bank Debate
| Perspective | Primary Argument | Key Concern |
|---|---|---|
| Political/Proponents | Need for specialized support for small businesses and startups. | Lack of policy continuity and financial exclusion. |
| Financial Regulators | Existing banks already supply significant credit to the underserved. | Systemic risk and “over-banking” instability. |
| Academic Experts | Innovation is fine, but operational capability is mandatory. | Unstable deposit bases and high default risks. |
As the debate continues, the focus remains on whether any future consortium can present a roadmap that satisfies both the demand for innovation and the rigid safety standards of the FSC. For now, the financial authorities are prioritizing the health of the existing system over the expansion of the digital banking sector.
The next critical checkpoint will be the government’s official response to the National Assembly’s calls for a renewed roadmap. Until a clear set of criteria for capital adequacy and risk management is established, any move toward a fourth license remains speculative.
Do you think more digital banks lead to better financial access, or do they create unnecessary risk? Share your thoughts in the comments below.