Experts are calling for eased regulations on financial technologies to allow the growth of the local fintech industry. The two most burdensome regulations include the strict separation of commerce and banking, and the prohibition on authenticating consumers through non-face-to-face channels, industry watchers said.
The current rule on separation of commerce and banking restricts financial and industrial companies from holding each other’s capital on to prevent conglomerates from controlling banks’ money. Currently, an industrial companies are able to hold only 4 percent of a bank’s shares.
Under the rule, tech companies including Daum Kakao and Naver are not able to set up online banks, causing the already weak local fintech industry to lag further behind other nations.
America’s General Motors Co. and Germany’s BMW have their own online banks ― Ally Financial and BMW Bank ― specially designed for automobile financing.
Since the Japanese government set out guidelines for a new banking industry in 2000, its companies have been allowed to hold over 20 percent of the shares in a bank.
Shin Je-yoon, chairman of the Financial Services Commission, agreed last month on the need to set up online banks in Korea. Still, he said, “Easing regulations on separation of commerce and banking needs social consensus.”
Another hurdle for the growth of fintech startups is the prohibition on authenticating consumers through non-face-to-face channels, industry watchers said. Currently, users must visit financial institutions in person for name verification as part of efforts to prevent personal information leaks.
“This hassle has made local fintech startups lag behind while other foreign firms are offering innovative services,” said Moon Byung-soo, a researcher at LG Economic Research Institute.
Since China’s Alibaba launched its online mutual fund Yuebao last September, which does not require users to visit financial institutions to join, it has already drawn around 100 trillion won ($91 billion).
Industry watchers also blamed the industry’s slow growth on the unclear roles of the relevant supervisory authorities. Currently, state entities responsible for fintech-related industries include the Financial Services Commission, the Korea Communications Commission, the Ministry of Science, ICT and Future Planning, and the Bank of Korea.
“Despite the increasingly complicated payment service providers and their methods, the roles of supervisory authorities are still ambiguous. Relevant authorities need to work together to better communicate with market players,” said Lee Soo-jin, a researcher at the Korea Institute of Finance.
