Shinhan Financial Group, a major banking group in South Korea, has dropped out of the internet-only bank consortium led by Viva Republica, the operator of the popular mobile money transfer app Toss.

Viva Republica said Thursday that “Shinhan Financial has conclusively decided to not participate in the fintech firm’s consortium to establish an internet-only bank, due to differences in business direction.”

According to the financial technology startup, since the two parties signed a memorandum of understanding last month they had engaged in ongoing discussions about the direction, business model and constituents of their envisioned internet-only bank.

But the two sides had stark differences on those critical issues, leading to a mutual decision for Shinhan to step out.

Viva Republica said it had pushed for the establishment of a “Europe-style challenger bank” that would have prioritized customer experience innovation through a startup culture and product planning capabilities.

However, Shinhan Financial had sought to bring Korea’s lifestyle platform operators in as partners, in order to build an “open banking” financial ecosystem for use by citizens nationwide.

“We will continue to work with the rest of our consortium partners to complete our task of successfully building an innovative internet-only bank in Korea,” Viva Republica said.

“Despite regrets, we respect the Toss operator’s decision to discontinue our partnership in the consortium. We plan to continue helping the Toss Bank consortium in its business,” Shinhan Financial said.

With Shinhan out, the Toss Bank consortium will continue its preparations to submit its application for an internet bank operational license, in partnership with the remaining consortium members.

Though the Viva Republica-led consortium’s membership list has yet to be finalized, current participants include e-commerce platform Cafe24, online fashion store Musinsa and real estate app Zigbang.

In addition to the Toss Bank consortium, another consortium led by Kiwoom Securities is pushing to establish an internet-only bank in Korea. The Kiwoom Bank consortium currently consists of Hana Financial Group, SK Telecom and 11st, an e-commerce site under SKT.

Korea paved the way for new players in the internet-only banking business when a regulatory change allowing nonfinancial institutions to own and operate online-only banks took effect earlier this year.

The new law enables information and communications technology firms to own up to 34 percent of an internet-only bank, up from the 4 percent threshold stipulated by Korea’s Banking Act (10 percent without voting rights).

The change would permit ownership changes at existing internet-only banks as well as allow new corporate players to create online banks and ramp up the competition. The Financial Services Commission plans to issue up to two licenses later this year. 

Korea currently has two internet-only banks: K-bank operated by telecommunications firm KT and Kakao Bank run by mobile messaging company Kakao.

By Sohn Ji-young (jys@heraldcorp.com)