[KH Explains] Why does KB Bank hold on to money-losing budget phone service business?

KB seeks to improve its credit evaluation model using mobile phone user data

Headquarters of KB Kookmin Bank (KB Kookmin Bank)

KB Kookmin Bank recently gained a green light from the country’s financial regulator to continue its mobile telecommunications business after its four-year experiment as a regulatory sandbox program.

It is the first lender in the country that has ventured into the mobile telecommunications market, dominated by three major telecommunications carriers. But a question remains: Why would the bank want to continue a business which has been in the red for years and has little relevance to its mainstay industry?

KB Kookmin Bank received approval from the Financial Services Commission for its “altteul,” or budget, phone service Liiv M. Altteul phone services are mobile virtual network operators, or MVNOs, that rent infrastructure from major telecommunications firms and provide affordable mobile data plans to consumers.

“Telecommunications services take up an essential part of people's daily lives. There is plenty of data deriving from their phone usage 24/7,” KB Kookmin Bank official Park Jeong-yeong said.

One of the key examples of data that the bank can gather from its mobile phone users – especially younger ones who have just started working -- is their financial situation, by monitoring whether they’re paying their phone bills on time.

When lenders extend loans, they often like to see a proven track record of timely payments, but younger first-time borrowers normally don’t have a credit history. Therefore, it’s helpful for the bank to have such data.

“Liiv M is not a business that we do for moneymaking. It is to create synergy with the financial service that we provide,” Park said.

According to data submitted by the lender to Rep. Yoon Young-deok, a member of the National Assembly's Political Affairs Committee, Liiv M posted an operating loss of 13.9 billion won ($10.49 million) and 18.4 billion won in 2020 and 2021, respectively.

In terms of number of users, Liiv M showed a rapid growth in a short period time, reaching over 400,000 people as of February this year. The figure accounts for nearly 7 percent of the total number of MVNO users.

However, the figure is still a drop in the bucket in the telecommunications market as a whole.

Of 76.2 million mobile service users in the country, those directly subscribed to the three major firms – SK Telecom, KT and LG Uplus -- take up 83 percent, according to data from the Ministry of Science and ICT in March.

What gives KB Kookmin Bank room for growth is price competitiveness. In general, altteul phone plans are 30-50 percent cheaper than regular carrier rates.

The lender is a well-capitalized company with a strong market position in the banking industry. With its total assets exceeding 600 trillion won, KB can outsmart smaller MVNO rivals with its sizable infrastructure and aggressive promotion campaigns.

"MVNO is a business with a high entry barrier. It costs a lot to borrow carriers’ networks,” an industry source said.

Another case of a financial firm foraying into the altteul phone service market is the fintech unicorn Toss.

Toss launched Toss Mobile in February after acquiring a 100 percent stake in MVNO operator Merchant Korea last year.

Toss Mobile refunds unused data mobile points tied to its flagship financial platform Toss. Mobile payments, authentication, and membership functions of the app can also be used in conjunction.

Other major lenders seem to be lukewarm about entering the market. “We see that KB is doing the business well, but we don’t see much potential (for us) as a latecomer in the market,” a Woori Bank official said.

By Park Han-na(hnpark@heraldcorp.com)