The fintech craze that has been sweeping through the financial and IT industries is on course to kick into higher gear. Over the course of one year, fintech, many think, has successfully attracted attention from relevant industries as the selection of the nation’s first online-only banks and the launch of cloud funding services grabbed the headlines.
Influential foreign media outlets based in Germany, the UK, France, etc. applauded the South Korean government’s efforts to foster the growth of the fintech industry. However, fintech receives a very lukewarm response from the public in S. Korea. Then, what should be done to drive financial reform through the promotion of fintech and to make fintech deeply relevant to the daily lives of South Koreans
Doh Kyu-sang, head of the Financial Service Bureau of the Financial Services Commission (FSC), conversed with Kim Hyoung-Joong (Head of the Korean Society of Fintech and Professor at Korea University) about ways to make fintech seep into our daily lives.
Asked about the extent to which Korean companies have embraced fintech, Doh Kyu-sang answered: “It is very encouraging to see financial companies and banks’ perceptions towards fintech changing.”
“South Korea’s fintech is still in its infancy, but there are many Korean companies armed with world-class information technologies. Thus, the foundations for fintech have already been laid. The transition to fintech can serve as a great opportunity for the Korean financial industry to reinforce its global competitiveness,” Doh added.
“Though we are outfitted with advanced financial and IT infrastructures, such as world-class online banking and credit card networks, we belatedly felt the need to introduce fintech, consequently letting other countries have a head start over us.”
Will financial regulations stunt the growth of fintech No. it won’t.
“There is no longer a regulatory hurdle,” Doh said when Kim Hyoung-Joong pointed out the government’s excessive regulations, taking for example that South Korea’s online payment system prevented Chinese online shoppers from buying the same coats Cheon Song-Yi (played by Korean actress Jun Ji-hyun) wore in South Korean television series “My Love from the Star.” Doh argued that most of the old regulations that undermined the development of the fintech industry had been realigned as the rules on the supervision of electronic financial services were revised in March 2015 to make it unnecessary to install the installation the ActiveX security program and the public key certificate system.
Preliminary security screening procedures, which financial companies wanting to graft IT onto their financial services had to undergo for as long as three years, were drastically abolished. Regulations on the process of entrusting a financial company’s data processing task to an external entity have been lowered in line with international standards that developed countries have put in place, Doh emphasized.
Some remaining regulations will be either lowered or lifted through consultations with relevant ministries including the Ministry of the Interior, the Ministry of Science, ICT and Future Planning (MSIP) and the Ministry of Justice.
Korean Fintech Demo-Day: Strategy for Korean fintech’s entry into foreign markets
Doh mentioned that Korean Fintech Demo-Day would play an important role in exploring ways to facilitate Korean fintech’s entry into overseas markets.
Korean Fintech Demo-Day is scheduled for April-May in London, June in Southeast Asia, October in the US’s Silicon Valley and December in Shanghai. At each Demo-Day event, MoUs will be signed with representatives from fintech incubators and accelerators in Singapore, Australia, etc., including the World SME Forum (WSF).
“The US marekt has already regarded Korean fintech as marketable. By holding Korean Fintech Demo-Day this year, we will learn how foreign markets would react to Korean fintech,” Doh said.
Judging from the fact that global financial powerhouses like Germany and France show an interest in Korean fintech, the FSC thinks, it’s not too late for the Korean fintech industry to go global.
This year, expectations are growing for online, non-face-to-face financial services such as cloud funding and robo-advisors for asset management. In addition, the Korean security industry, called “K-Security,” has drawn great attention from China and Japan.
“Along with the buzz around fintech, expectations are high for Korean online-only banks to break into foreign markets just like Naver’s line did. Countries tend to impose regulations on inflows of foreign capital when it comes to banking. However, online-only banks are different from their offline counterparts,” said Kim.
Korean offline banks’ assets are relatively small so that it is difficult for them to enter a foreign market. Besides, their understanding of networks and cultural differences leaves a lot to be desired. However, as online-only banks are based on the online provision of non-face-to-face services, there is now language barrier. Hence the FSC believes that Korean online-only banks can stay competitive in overseas markets.
There is concern over the possibility of fintech firms posing a threat to incumbent financial institutions. “If the competitiveness of the incumbents deteriorates, we shouldn’t intervene to protect them,” Doh said.
When Kim asked, “What kind of growth strategy do you have to help Korean fintech firms discover business opportunities in and outside the nation, Doh answered: “On top of addressing infrastructure-related issues, like regulatory reform, there is also a need for setting up fintech support centers with a focus on expediting the formation of networks between suppliers and consumers.
Since financial institutions’ efforts to make forays into a foreign market can be given an impetus by government agencies playing a bridging role, the FSC is contemplating building a system whereby closer cooperation with relevant ministries including the Ministry of Foreign Affairs can be ensured.
“In the long term, each securities firm or financial company will be matched up with its own target market. When many companies want matchmaking services simultaneously, cherry picking will ensue,” Doh explained.
Growing concerns over the protection of personal data
Kim said: “Sharing financial data is crucial to rev up the fintech industry. Yet, regulations such as the Personal Data Protection Act excessively hinder data sharing, thus undermining the development of fintech. Google and Facebook indirectly hold tremendous amounts of personal data, so if they entered the finance business, they could deal a blow to incumbent financial institutions.”
Doh said: “Personally identifiable information (PII) shouldn’t be disclosed no matter what happens. Personal data except PII can be made accessible to anyone as long as it is permitted under the Personal Data Protection Act and the Information and Communication Network Act.”
“All the same, Korea had reeled from massive leaks of personal data including credit card information, so more discussions are needed on the extent to which personally non-identifiable information can be disclosed to the public,” Doh added.
The FSC plans to form a taskforce for each sector if needs be, and issue an authoritative interpretation of relevant Acts so as not to pass the buck to users of personal data.
A bill designed to draw a clear line between personal data and credit information has often sparked the “Big Brother” controversy at the National Assembly. Though it is hard to say that there is zero chance of invasions of privacy, preventative measures can be taken, according to Doh.
“When holders of personal data, i.e. banks, intentionally or negligently cause leaks of personal data, they will be strictly punished in the EU and the US. Our punishment for inadvertent leaks of personal data isn’t as strong as theirs. Those who are responsible for data leaks should be strictly punished. At the same time, we need to find a way to enhance our competitiveness by allowing unbridled access to public and social infrastructures.” Doh stressed.
