South Korea's 3 internet banks generated W1.3tr in inclusive finance social value last year — 2.5 times the 2022 figure

"A bank that's the same, yet different" (Kakao Bank), "Korea's first internet bank in the first financial sector, K bank" (K bank), "A new banking experience you can't go back from" (Toss Bank) — these are the slogans under which South Korea's three internet-only banks set out to shake up the financial industry.

Launched under those banners and positioning themselves as the "catfish" of the financial sector, the internet banks are marking their 10th anniversary this year, counting from the January 2016 establishment of Kakao Bank and K bank. They are widely credited with transforming banking from an offline-centered model to a mobile-first one, upending the financial paradigm through technological innovation. Expanding financial access for those left out of the traditional financial system is also cited as a key positive outcome.

Particularly notable is the social value of the inclusive finance they have extended to "thin filers" — low-income vulnerable groups, youth and sole proprietors with limited credit histories. That figure reached 1.3 trillion won last year. The internet banks began quantifying the social value of their inclusive finance in 2022, and the figure has surged 145 percent in three years.

Challenges remain, however. The internet banks face a complex balancing act: they must steadily meet a regulatory target requiring that loans to mid- and low-credit borrowers account for 35 percent of their loan books by 2028, while simultaneously maintaining loan quality and profitability. Experts also say the banks need to maximize non-face-to-face access to complex financial support services, including upgrading their credit scoring systems and interest rate reduction request processes.

▶ Measuring the social cost of keeping vulnerable borrowers out of the secondary financial sector = The social value creation model used in this analysis applies a uniform formula across all three internet banks for an objective comparison. The basic formula is: average annual loan balance × (benchmark market rate − each internet bank's applied rate) + guarantee fees paid by the internet bank on behalf of customers. Four core inclusive finance products served as the basis — Haetsal-ron 15, mid- and low-credit borrower loans, youth jeonse and monthly rent deposit loans, and sole proprietor guarantee loans — with average annual loan balances and applied rates substituted into the formula. The exercise quantifies the tangible results the internet banks have achieved as inclusive financial institutions at a time when prolonged high interest rates and inflation have deepened hardship for ordinary households.

For each product category, interest savings were calculated by subtracting each bank's actual applied rate from the benchmark rate and multiplying the result by the average loan balance. Guarantee fees the banks paid on behalf of customers were then added to arrive at the total. The result represents the real cost savings for vulnerable borrowers who might otherwise have been pushed into the secondary financial sector, converted into social value.

The benchmark rates were drawn from the Bank of Korea's Economic Statistics System, using the average lending rates of non-bank financial institutions such as savings banks. The rates applied were: 19 percent — near the statutory maximum — for Haetsal-ron 15; 15.75 percent for mid- and low-credit borrower loans; 6.31 percent for youth jeonse and monthly rent deposit loans; and 10.76 percent for sole proprietor guarantee loans.

Among the three banks, Kakao Bank generated the largest social value at 695.8 billion won. Adding the interest discount effects of K bank and Toss Bank brings the combined total to well over 1.3 trillion won.

▶Social value of inclusive finance surges 145% from 2022 = The social value of inclusive finance across the three internet banks has grown sharply each year. The annual figures rose consistently: 537.8 billion won in 2022, 1.04 trillion won in 2023, 1.1 trillion won in 2024, and 1.32 trillion won in 2025. Compared with 2022, when the banks first began quantifying the figure, the total has surged 145.33 percent in three years.

Beyond the aggregate figures, each of the three internet banks is also refining its own inclusive finance model by leveraging its particular strengths.

Kakao Bank has been expanding its supply of mid- and low-credit loans through its proprietary alternative credit scoring model, "KaBank Score," which relies primarily on non-financial data. The model draws on pseudonymized combined data from the Kakao ecosystem as well as from Lotte Members, Kyobo Book Centre and the Korea Financial Telecommunications and Clearings Institute. The bank has also developed a "small business sector-specific credit scoring model" for the sole proprietor segment, incorporating business information to assess food service operators and online sellers. Since its introduction in 2023, roughly 12 percent of the mid- and low-credit loans Kakao Bank has extended would have been rejected under the previous model but were approved through the new one — amounting to 1.2 trillion won in additional supply. Cumulative mid- and low-credit loan disbursements since the bank's launch in July 2017 have surpassed 16 trillion won.

K bank has shown particularly strong expansion in sole proprietor lending. As of the end of June this year — four years after the product's launch — cumulative disbursements reached 5.19 trillion won. The bank supplied 1.52 trillion won in the first half of this year alone, approaching 82 percent of its full-year 2025 figure in just six months. Real estate collateral loans and guarantee-backed loans have grown rapidly within that portfolio, pushing the share of guarantee and collateral loans in the sole proprietor loan balance to 45 percent at the end of June. The shift away from an early concentration in unsecured credit loans toward a more balanced mix of collateral and guarantee products is seen as having strengthened the bank's buffer against default risk. K bank also introduced an upgraded credit scoring model, "CSS 3.0," last year, incorporating data on customers acquired through loan comparison platforms and real estate collateral loan data to improve precision, while operating a separate model tailored to mid- and low-credit borrowers.

Toss Bank, the youngest of the three, recorded the highest share of mid- and low-credit borrower loans among all first-tier banks and internet banks combined, at 34.75 percent of its loan balance in the first quarter of this year. First-quarter disbursements of policy-backed retail finance products — including Haetsal-ron Bank and Saitdol loans — totaled 457.4 billion won, with cumulative disbursements reaching 2.56 trillion won. Of that, cumulative disbursements of Haetsal-ron Bank alone exceeded 1.47 trillion won. Toss Bank operates its own proprietary credit assessment system, "TSS (Toss Scoring System)," which evaluates customers' actual repayment capacity by incorporating not only financial data but also spending patterns, cash flow and payment history. The bank recently introduced an upgraded version, "TSS 3.0," further strengthening its product-specific underwriting framework.

The mid- and low-credit borrower loan ratio refers to the share of total unsecured credit loans extended to customers in the bottom 50 percent of credit scores. Financial regulators have required internet banks to disclose this ratio since 2021, in keeping with the purpose for which they were established — a policy mechanism designed to encourage internet banks to fill the gap left by traditional commercial banks, which have tended to take a more conservative approach to lending to mid- and low-credit borrowers.

▶ "Policy incentives to help build alternative models needed, not just pressure" = However, experts say that for internet banks to move beyond being a "catfish" and establish themselves as a genuine financial safety net, the right policy environment — including incentives — must be put in place, not just a sharper focus on defining their role.

Choi Cheol, a professor of consumer economics at Sookmyung Women's University, said that to guide internet banks toward public lending and inclusive finance in line with their founding purpose, regulators need to go beyond simply ordering them to extend more loans to vulnerable groups. "Policy design that runs in parallel — such as providing incentives for the active development of alternative credit scoring models — is also necessary," he said.

The internet banking industry has also voiced the need for such policy support. An official at one of the internet banks said the banks are staking everything on upgrading their alternative credit scoring systems, but face real limits in securing cooperation from individual institutions when using pseudonymized combined data with outside organizations, due to risks around personal data protection liability. "If institutional support at the government level is put in place, we would be able to both improve loan stability and further expand the scope of inclusive finance," the official said.