The consortium led by Viva Republica, operator of the popular mobile money transfer service Toss, was granted preliminary approval by the financial authorities Monday to launch the nation’s third internet-only bank.

Following the Financial Services Commission’s decision, the company said it plans to establish Toss Bank soon after final approval in the first half of 2021.

The move is expected to increase competition in the online-only banking sector which has only two operators now -- Kakao Bank and K bank. Both began offering services in 2017 without brick-and-mortar branches. 

Viva Republica has previously proclaimed that Toss Bank aims to become a “challenger bank” in the market and introduce ways to better serve “thin filers,” -- people with limited credit histories who have been long marginalized by traditional banks.

This was the Viva Republica consortium’s second attempt after the FSC rejected the earlier applications filed by two consortia -- led by the fintech firm and Kiwoom Securities in May. It cited concerns over governance and financing behind its rejection of the proposals.

Kiwoom has since dropped out of the race and was replaced by contenders including Soso Smart Bank and Familia Smart Bank consortia in the second-round of bidding that kicked off in October.

Soso Smart Bank consortium, backed by a business group of small- and medium-sized firms, was rejected in the latest round with the financial authorities taking issue with its insufficient “plans to raise capital and operate business.” Familia Smart Bank consortium retracted its application earlier this month due to its failure to prepare required documents in time.

A committee of private experts hired by the government reviewed the final two applications and assessed presentations by the Viva Republica consortia. The committee lauded Toss Bank for its largest shareholder’s willingness to contribute to financial innovation and its plans, through a statement.

Viva Republica has the largest 34 percent stake in its consortium, above KEB Hana Bank and Standard Chartered Bank Korea with a 10 percent and 6.67 percent, respectively.

Toss currently has more than 16 million registered users and offers over 40 different financial services including money transfer and credit score management.

“Toss has already become the leading financial super app in Korea. With (the) digital bank license, we will be able to broaden our product offerings, so that we can accelerate our mission to innovate the financial industry,” said Viva Republica CEO Lee Seung-gun.

The announcement comes as Koreans are increasingly using financial services through their computers and smartphone apps. The trend has nudged traditional banks to cut commission fees and update their online services to compete in the market. 

By Jung Min-kyung (mkjung@heraldcorp.com)