This isn’t the first time we’ve delved into the world of virtual banks — AKA challenger banks, neobanks, or digital banks. Last time, we looked at China, Taiwan, Hong Kong, Southeast Asia, and India. As part two of a two-part series, this time we’ll be introducing virtual banks in Japan, South Korea, and Australia, focusing particularly on what makes Japan a unique case amongst its peers.
Part II: All of the Virtual Banks in Asia in 2021 So Far
South Korea’s regulator is well ahead of the game in Asia, having issued its first virtual bank license to K Bank in December 2016. Later on, it also issued one to Kakao Bank in April 2017 and another to Toss Bank in December 2019. There hasn’t been a new virtual bank license issued since.
- K Bank (케이뱅크): Backed by Korea’s largest telecom KT Corporation, K Bank is the first virtual bank to open in Korea. It provides savings accounts, loans, debit/credit cards, and insurance. It has more than six million customers and is aiming to go public in 2022.
- Kakao Bank (카카오뱅크): Backed by Kakao Corp, the internet conglomerate behind its namesake instant messaging app, Kakao Bank is the second virtual bank to go live in Korea. It provides various types of consumer banking services, including savings accounts, brokerage accounts, overseas remittance, loans, and debit/credit cards. It has more than 16 million customers and just went public in August 2021.
- Toss Bank (토스뱅크): As a future service under Toss, a super app with more than 40 financial services and 20 million users, Toss Bank will be launched in Sep 2021 with a focus on consumer loans and saving accounts.
Australia does not have a separate license for virtual banks. Instead, the virtual banks either acquire the traditional bank licenses or work with existing banks. So far, Volt Bank, Judo Bank, 86 400, Xinja Bank, and in1Bank respectively have manage to acquire traditional banking licenses. However, Xinja Bank returned its license in December of 2020 and shut down its banking business due to the impact of COVID-19.
There are several other neobanks that are either partnering with existing banks or applying for a RADI, or a restricted ADI license, at the moment, such as UP Bank, Douugh, Hay, and DayTek. UK-based digital bank Revolut also recently launched in Australia.
- Volt Bank: It was established in 2017 and is funded by Australian Finance Group, Collection House Group and others. In January 2019, it became the first internet-only bank in the country to obtain an ADI license (or a full banking license). They currently have a partnership with Microsoft.
- Judo Bank: Judo Bank was founded in 2016, acquired ADI license in Apr 2019, and has raised over $1.8 billion since then. It is a tech-driven bank focusing on SMEs as its main customers.
- 86 400: Founded in 2017 and owned by Casual, a payments network, 86 400 is the only challenger bank in Australia that offers mortgage loans, along with other basic banking services. It obtained an ADI license in Jul 2019. It’s name comes from the total number of seconds in a day.
- in1Bank: In1Bank was founded in 2018 by BDB corp. It obtained a RADI license in 2019. (As a matter of fact, Volt and Xinja also started with RADIs, but later upgraded to ADIs.) In1Bank mainly serves Chinese speakers living in Australia.
Japan has a unique landscape in regards to internet-only banks. Europe and US is currently the biggest market for internet-only banks with the majority of banks springing up between 2012 and 2016. In Asia, the Middle East, Latin America, and Africa, most major players were established later, primarily between 2015 and 2020, in part due to the wave of success from they saw in the Western market.
One outlier of this was the first internet-only bank in Japan, The Japan Net Bank (which recently rebranded as PayPay Bank). It was actually established in 1995, obtained their online banking license in September of 2000, and launched its services in October of 2000. Japan’s other major internet banks, or ネット銀行 as they are known domestically, include Sumishin SBI Bank, Rakuten Bank, and Sony Bank — all of which were established in the early 2000s. This is way earlier than the wave of challenger banks occurred in even Europe and the US.
All of these internet banks have traditional banking licenses, but none of them have physical, brick-and-mortar branches. In fact, Japan regulators don’t issue a separate license for online-only banks without physical branches.
Japan’s new generation of virtual banks
However, there is a new generation of companies that are trying to become virtual banks in Japan, bringing forth a new generation of “Internet Banks.” Instead of obtaining a full banking license, they start with a more specific license that only allows them to provide one single financial service, such as debit card, credit card, stock brokerage, remittance, etc.
Rather than using the core banking system and credit models of a traditional bank, which was what the “Internet Banks” did back in 2000s, this new generation of virtual banks develop their own (or adopt a third party’s) innovative banking system and credit models using alternative data. Instead of being PC first and adopting a solemn design style, the new generation is mobile first and develops UI/UX that are fun and similar to social media or gaming apps.
In Japan, there are multiple approaches for a company to establish itself as a virtual bank and here are some new players to note:
- Nudge (ナッジ): Raised more than $10M before launch, Nudge has recently become one of the few to secure a new version of credit card license and launched its next-generation credit card. Unlike traditional credit cards in Japan, Nudge has an extremely simple on-boarding process and provides unique card rewards, such as audio and video messages from your favorite celebrities. Similar to the largest digital bank in the world, Nubank in Latin America, Nudge has plans to start with a credit card business and provide other financial services in the future.
- Kyash (キャッシュ): Kyash started as an e-wallet app similar to Venmo, but their main product now is a prepaid debit card. It’s backed by VC firms including Jafco and SBI, and an a number of CVC’s of major banks, like SMBC, Mitsubishi UFJ, Mizuho, and Shinsei.
- B/43 (ビーヨンサン): Founded by the founder of Fril (the pioneer of C2C marketplace app in Japan which was acquired by Rakuten later on), B/43 provides a household bookkeeping app and a prepaid card.
- Minna Bank (みんなの銀行): Launched in May of 2021 under the regional bank Fukuoka Financial Group, it claims to be the first digital bank in Japan. It is the first financial institution in Japan to adopt a core banking system built on Google Cloud Platform. Besides savings accounts and debit cards, it also provides BNPL (buy-now-pay-later) services.
- PayPay Bank (ペイペイ銀行): PayPay, a QR code payment company jointly established by Softbank and Yahoo, was converted in a wholly owned subsidiary of The Japan Net Bank in 2018. Then, in April of 2021, The Japan Net Bank changed its name to PayPay Bank. Practically speaking, PayPay Bank falls under the mold of “internet banks” from the last generation.
- Line Bank (Line銀行): A joint venture between messaging app Line and Mizuho Bank, Line Bank will be launching its services in Japan in 2022.