Is it innovation or confusion? Toss Bank enters the foreign exchange service market with ‘lifetime fee exemption’

Declaration of application of 100% preferential exchange rate regardless of performance 
“Perfect hedging is difficult due to the nature of foreign exchange” 
Is it possible to offset the spread with foreign currency management?

Internet bank Toss Bank has launched a foreign exchange service that allows exchange of 17 currencies, including the U.S. dollar, 24 hours a day without fees. Through this, the ambition is to lower the threshold for foreign exchange services and achieve market innovation. In the industry, voices are raising concerns about market confusion caused by excessive marketing.

“Expanding foreign exchange opportunities for general consumers”

On the 18th, Toss Bank held a press conference at Dongdaemun Design Plaza (DDP) in Jung-gu, Seoul and announced the launch of foreign exchange services. The explanation is that 17 currencies, including the US dollar, Japanese yen, euro, and pound sterling, can be exchanged in real time regardless of bank business hours. Toss Bank determined that other banks’ currency exchange services increased customer inconvenience by applying different exchange fees depending on transaction performance, etc., and announced that it would apply a 100% preferential exchange rate to everyone without conditions.

With the launch of the foreign exchange service, Toss Bank consumers will be able to check exchange rate information provided in real time every day and buy and sell like stocks. Kim Seung-hwan, Toss Bank foreign exchange service product owner (PO), emphasized that “‘Forex tech’, which generates profits through exchange rate fluctuations, is no longer the domain of high-net-worth individuals,” and added, “Toss declared ‘transfer fees free’ in the early days of the service’s launch. “Just as we made the movement of money free, Toss Bank will also break down the boundaries between won and foreign currencies by offering free currency exchange fees,” he said.

The Toss Bank foreign currency account, which was launched on this day, is used for foreign exchange services by combining it with the existing deposit/withdrawal account and check card. If you have a check card linked to your foreign currency account, you can make ATM deposits, withdrawals, and payments from around the world. Fees vary depending on the partnership. Min-taek Hong, CEO of Toss Bank, said, “I withdrew money from five ATMs in Taiwan and found that three did not incur fees. Some overseas ATMs may charge their own fees, so it would be helpful to check these in advance.” He explained.

An automatic currency exchange function is also installed. If you go to the foreign exchange service in the mobile application (app) and activate the ‘automatic exchange of insufficient money’ function, if the balance in your foreign currency account is insufficient, it will withdraw money from the Korean won account in Toss Bank and perform real-time currency exchange on your behalf. Furthermore, we plan to introduce an overseas remittance function as soon as possible.

Representative Hong said, “Because many Koreans do not hold enough foreign currency due to psychological or physical constraints, there has been a problem of wealth built based on the won being sacrificed in situations such as dark clouds over the macro economy.” He added, “Currency exchange service. “If we solve accessibility issues through innovation, more people will be able to hold foreign currency and move money freely,” he said.

Where is the hedging cost of nearly 3%?

Experts agreed that, as there are many risks to financial institutions that can arise during the currency exchange process, attempts to give up profitability, such as ‘completely free commissions’, will cause confusion in the market. Due to the constantly changing nature of the exchange rate, 100% perfect hedging (a transaction that offsets the risk of spot price fluctuations with futures price fluctuations) is difficult, and considering the management costs for providing services, Toss Bank’s free commission is ‘savings’. It is pointed out that it is close. In fact, according to the Capital Market Research Institute, the hedging cost of foreign currency hedged financial products traded domestically was calculated to be 2.8% on average (as of December 2022 to November 2023). A fee exceeding at least 2.8% must be applied to avoid loss in the process of providing foreign exchange services.

In response to this criticism, Toss Bank refuted that it had built a business model that does not generate negative margins even without charging currency exchange fees. CEO Hong explained, “Foreign currency services not only involve commissions, but also have various business models such as spreads and foreign currency management. We have created a business model that secures profits by growing businesses in the opposite direction and converts them into non-interest profits.” did. Attention is focused on whether Toss Bank’s strong confidence and assurance, which declared ‘lifetime free currency exchange’ upon entering the foreign exchange market, will lead to innovation or market chaos.