Financial analysis of pure-play internet banks: South Korea (Kakao Bank, K Bank) and England (Atom Bank, Monzo Bank) experience

Abstract

This study aims to measure the financial performance of the prominent pure-play internet banks operating in South Korea and England using ratio analysis. Pure-play internet banks could be launched soon in Turkey. The study sheds light on the regulatory authorities and the banks adopting the pure-play internet banking business model. Kakao Bank and K Bank (pure-play internet banks in South Korea) for the 2018-2020 period are obtained from the FSS (Financial Supervisory Service) Financial Statistics Information System. The annual financial data of Atom bank and Monzo bank (pure-play internet banks in England) for the 2018-2020 period are acquired from the annual financial reports of the associated banks. Kakao Bank can be a role model for other pure internet banks in profitability, income/cost ratio, and economies of scale. Two years after Kakao Bank became operational, it succeeded in making profits by taking advantage of economies of scale and managing the income/cost ratio effectively. The main difficulties experienced by K Bank, Atom Bank, and Monzo Bank are the high operating expenses and the fact that they have not taken advantage of economies of scale. In other words, they cannot generate enough operating income to cover their operating expenses. These banks will achieve profitability to the extent that they grow their assets profitably and reduce their operating costs. Besides, Monzo Bank's strategy to increase its net non-interest income can be a role model for other pure internet banks.