Fintech is the latest phase in the ongoing IT revolution and South Korea no doubt shows an upside potential for this digital disruption.
South Korea is a hub of technology and innovation in almost every possible area. It has a wide array of Financial Technology businesses like payment services, blockchain, peer-to-peer investment and lending etc. New electronic payment services- KakaoPay and NaverPay are some latest Fintech innovations in the country, tailor-made according to the needs of the Korean consumers. Some online banking platforms- K-Bank and Kakao Bank have also flourished in the country. These banks have secured a significant market share by marketing loans with low interest rates and deposits with favorable interest rates.
State of Fintech in Korea
The Financial Services Commission (FSC) is the South Korean government’s top financial regulator. In January 2019, it had created a plan for revitalizing the Fintech industry. Some key features of the plan being- reforming the existing laws and ‘shadow’ regulations, legislation of financial innovation projects such as big data and P2P and establishment of Fintech budget execution plans and budget standards. Primary focus was on improvement of financial regulations, revitalizing non-face-to-face financial transactions and reducing restrictions on a financial company’s investment in Fintech firms.
FSC of Korea also set 7.9 billion WON (US$ 6.5 million) as the budget for 2019 to provide up to 75 per cent of R&D costs to Fintech firms that participate in financial regulatory test-beds. It also decided to financially support about 80 Fintech companies. But for the year 2020, it will be setting up a 300 billion WON fund, equivalent to US$ 250 million to fund Fintech companies.
A regulatory sandbox for start-ups has been launched. The new sandbox is expected to boost FinTech development, enabling start-ups to trial their applications with regulatory exemption for an unspecified time. The group of accepted applicants then enter a program aided by a US$3.5M investment by the FSC.
The above discussion suggests that the financial regulators and policymakers in Korea are susceptible to Fintech innovations and technology-driven entrants to develop the financial service markets in Korea. Licenses and registration for financial services are usually available to Korean firms only, with limited exceptions (If a firm runs its business for Korean residents in a foreign country).
In South Korea, a number of new industries have been established and growing explosively due to a rapidly developing and favourable Fintech environment. Various new projects are being introduced by the Fintech firms like-
- virtual mobile network business
- wire-transfer services using credit card loans
- social media authentication payment service
- individual platform business for new and renewable energy
- individual investors’ stock borrowing transaction
- simplified insurance subscription procedures
- assessment of credit rating of small private businesses
Some of Korea’s Fintech leaders are-
- Viva Republica (backed by PayPal and Altos Capital and valued at US$1.2 billion). The company operates a popular financial platform app called TOSS.
- Wadiz– A crowdfunding platform that provides seeding solutions for startups and new business ventures.
- Insurtech Bomapp– lets users compare and sign up for various types of insurance with ease.
Economic Growth backed by Fintech
The Govt. of South Korea is extremely encouraging regarding Fintech in the retail banking. A variety of digital banking platforms for financial services have been launched which will allow online retail services and products to be rolled out. This will lead to economic growth in the retail banking sector. Banks are being forced to improve customer service and experience on the digital platforms as a result of increased competition, due to which the retail banking sector, which was running on limited innovation is ramping up. The new Fintech world has made them work on their toes to retain their customers as well as attract new ones. The Bank of Korea, in a report revealed that it is considering issuing its own digital currency in the near future, due to inexorable changing landscape of finance all over the world. Even though South Korea is not on par with the Asia’s high performers in Fintech like Singapore and Hong Kong, the Govt. government is looking to change this.
Fintech being supportive for other industries, especially manufacturing industries has led to rise in productivity of goods as well as services in South Korea. It has strong industry linkage effects for forward and background industries. Hence, organisations can realize a sustainable Fintech industry through collaborative networks of innovation.
The 2019 regulatory changes have led financial institutions to make active investments in Fintech. In the first half of 2019, around 826 startups received investments and now there are over 300 Fintech startups in Korea. With the budget of US$ 250 million allocated for Fintech sector in the year 2020, these numbers are going to shoot up soon. If South Korea improves its international connections, the day is not far when it becomes a leading global FinTech hub.