Internet banks to be allowed in-person services for debt counseling, corporate loan reviews

Internet banks will be permitted to conduct certain in-person services — including debt restructuring consultations, corporate loan reviews and collateral inspections — when deemed necessary, under a new policy approved Tuesday.

The Financial Services Commission said it passed the "plan for the rational adjustment of the scope of in-person operations at internet-only banks" at its regular meeting Tuesday.

Internet banks are in principle required to conduct banking operations through electronic financial transactions. In-person services are allowed only on an exceptional basis for matters enumerated by law — for purposes such as user protection — and only after prior reporting to regulators.

However, the FSC said it recognized the need to expand the scope of permissible in-person services after situations arose where face-to-face contact was unavoidable. Those situations included processing special early-withdrawal requests tied to the launch of the Youth Future Savings Account, supporting debt restructuring, and expanding joint lending with regional banks for small and medium-sized enterprises and sole proprietors in the provinces. The internet banking industry had also consistently called for a broader scope of in-person operations in areas such as corporate finance, consumer protection and post-loan collateral management.

The FSC said it would maintain the principle of allowing in-person services only as an exception — when unavoidable due to legal or technological constraints or the need to improve consumer convenience — while also permitting additional in-person activities in line with the push for inclusive finance and changes in the market.

As a first step, the FSC plans to issue a legal interpretation clarifying that "on-site inspections" under the current Banking Business Supervision Regulations include interviews with a company's representative or executives. This will allow internet banks to conduct in-person meetings with a representative or executives when necessary during corporate loan reviews.

Specifically, this covers interviews with management conducted during corporate loan reviews to verify the intended use of funds and assess the credibility of repayment plans and the feasibility of business plans.

The FSC also broadened the scope of permissible in-person services through amendments to the Banking Business Supervision Regulations.

Newly permitted activities include: providing guidance, consultations and discussions with borrowers for the management or recovery of delinquent bonds, including debt restructuring consultations; verifying original documents to check for forgery or alteration of materials submitted through non-face-to-face channels; conducting on-site checks to verify the appropriate use of funds or the status and value of collateral; and handling fact-finding, delivery of processing results, and document issuance or receipt at a customer's request.

Alongside this, in-person operations will also be permitted when investigating or confirming the rights and occupancy status of collateral, leased housing or other subject properties; when electronic methods are not feasible due to legal or administrative constraints in establishing, modifying or enforcing a security interest; and when necessary to fulfill obligations under applicable laws and regulations.

Representative examples include cases where verification of forgery or alteration of supporting documents — such as proof of resignation — is needed during the special early-withdrawal process for the Youth Future Savings Account, or where an in-person inspection is required to confirm whether corporate or sole-proprietor loan funds have been diverted to purchase housing. The need to verify whether a mortgage borrower actually resides at the property, or whether a jeonse loan agreement is genuine, is also recognized.

For the three internet banks — K bank, Kakao Bank and Toss Bank — to carry out such services in person, they must report the content, method and scope of the planned operations to the FSC at least seven days before commencing.

The FSC said the measure is "a supplementary step to remove uncertainty around unavoidable in-person operations," adding that "internet banks still need to minimize in-person services in keeping with their founding purpose and continue to drive innovation in non-face-to-face operations."

The FSC and the Financial Supervisory Service plan to monitor compliance with the permitted scope of in-person services through regular inspections and said they will take strict action if any violations are found.

The internet banking industry welcomed the decision. The sector said the move would open up greater access to funding for regional small and medium-sized enterprises and sole proprietors that had been difficult to assess through non-face-to-face channels alone, and would allow for a more robust support system for debt restructuring for vulnerable borrowers.

The three internet banks are expected to review what is needed under the FSC's revised guidelines and prepare to expand in-person services accordingly. However, it remains to be seen whether this will lead to measures such as a broader rollout of physical service counters.

An official at one of the internet banks said the changes would "greatly improve overall consumer convenience as procedural difficulties such as document verification are resolved more flexibly," adding that the bank plans to "make substantive use of the permitted in-person scope as a complementary tool for risk management and inclusive finance."