In Korea, banks are getting into the phone business

Banks are getting into the mobile phone business in order to harvest more data from customers and keep customers on their apps.

Promotional image from Toss Bank announcing Viva Republica's acquisition of Merchant Korea [VIVA REPUBLICA]

Banks are getting into the mobile phone business in order to harvest more data from customers and keep customers on their apps.

They are entering telecommunications as mobile virtual network operators (MVNO), which lease capacity from carriers and offer discounted telecommunications services.

Traditional banks and internet-only banks are getting into the game.

"The data we can get as a financial company and the data we can obtain from offering telecommunications services are different," said Hur Woong, a spokesperson for KB Kookmin Bank. "KB aims to offer more sophisticated financial products based on the collected mobile usage data."

Viva Republica, operator of internet-only Toss Bank, announced on July 21 it signed a deal to acquire Merchant Korea, an MVNO, for 300 billion won ($230 million).

KB Kookmin Bank started Liiv M with LG U+ in 2019. It is also working with KT and plans to work with SK Telecom later this year. KB Kookmin Bank borrows the networks of the three largest phone companies to offer affordable cell phone plans to customers. Shinhan Bank markets phone plans on its banking app.

The number of MVNO service users broke 10 million in 2021, according to the Ministry of Science and ICT, and there are around 70 local MVNO providers.

A screenshot of KB Bank's Liiv M app [KB BANK]

KB appeals to users by offering discounts on cell phone plans to customers that sign up for their financial products, including savings accounts, in a bid to lock in customers to its app.

Shinhan Bank started working with KT in July to introduce budget phone plans sold by KT's MVNO partners on Shinhan's online app.

Banks are required to receive regulatory approval from the Financial Services Commission to be able to operate non-banking services. KB Kookmin Bank received the approval to run an MVNO in 2019.

People in their teens through 30s accounted for 35 percent of all MVNO users in the second half of 2017, according to ConsumerInsight. The percentage grew to 46 percent in the second half of 2020.

CrePass, a credit rating startup, uses data, including mobile data, to rate the credit of thin filers, who lack sufficient financial history. Woori Bank also offers loans to thin filers based on their telecommunications usage.

"There are people who don't have sufficient financial records, like housewives and students," said Bae Hyun-il, a spokesperson for Woori Financial Group. "There are no standards for evaluating their credit rating. But by evaluating the timely payment of telecommunications fees, we can build alternative credit rating models. Though the market isn't big, it could be a chance for the bank to find potential customers."

Viva Republica said it acquired Merchant Korea, an MVNO, because it considers the market highly promising and profitable.

"We acquired the company because we believe the industry itself will grow," said Kim Jin-ho, a spokesperson for Viva Republica. "The three major telecom firms — SK Telecom, KT, LG U+ — have around 50 percent of the MVNO market but aren't able to actively expand the service due to the talks on regulations. This means opportunities for small and medium-sized businesses."

"Small and medium-sized MVNOs weren't able to grow because of the lack of branding, customer management and accessibility. We believe Toss would be able to resolve that."

Merchant Korea uses networks of the three major telecom firms and has around 100,000 users.

Viva Republica's acquisition of an MVNO "is expected to generate synergy effects with its financial products," said Lee Kyung-eun, an analyst at KB Securities. "By combining finance and telecom services and offering discounts to customers, it will be able to attract more customers and raise competitiveness by locking in customers to its app."

BY JIN MIN-JI [jin.minji@joongang.co.kr]