2 April 2015
South Korea Plans Legal Re-Jig in National M-Commerce Catch-up
With country slipping behind in FinTech development, Seoul orders shake-up of obstructive financial services regime.
South Korea has been sadly lagging behind in 'FinTech', according to a number of its domestic businesses and legislators. The uptake of FinTech – a convergence of financial services and technology – is already far more advanced in many of the more developed markets and among a number of the country's Asian neighbours but, to date, its domestic implementation has been hampered by outdated legal protocols, particularly with regard to mobile payments.
Internationally, FinTech has ushered in sweeping changes to the financial services sector. This has seen a number of companies in the US, Europe and China all bidding take a lead in this emerging and highly lucrative industry.
At the very core of this burgeoning sector is mobile payment, one of the fastest-growing aspects of the financial services sector. Greater internet penetration, a wider availability of smart devices, increased consumer confidence in e-transactions, the emergence of dedicated shopping apps, as well as the huge range of price competitive items now available for online purchase, have all fuelled the rapid growth of this sector. In light of this, for most economies, mobile payments have long moved from being an early adopter fad to becoming centre stage for many consumers.
The sluggish growth of Korea's domestic FinTech industry has inevitably opened the door to a number of the global tech giants, notably US-based PayPal and China's Alipay. This has seen several of these overseas financial services providers expand their offer to Korean consumers from simple mobile transactions to loans, investment and asset management.
Korea's mobile payment market, however, is attracting the most attention. At present, the sector is seen as under-serviced by domestic service providers, largely because of the country's inadequate digital infrastructure and outdated legal requirements. While providing a welcome service to consumers, however, the dominance of global tech companies is seen as likely to hinder the growth of the country's own early-stage FinTech start-ups.
With South Korea generally regarded as one of the regional leaders in terms of IT development, its lack of FinTech readiness has surprised some observers. Overall, the domestic business community has been swift to blame the country's legal regime for this relative tardiness, branding Korea's financial regulations as "out-of-date" and "inappropriate."
Under this regime, it is also seen as difficult for non-financial companies to evolve into financial service providers. Any company wishing to store credit card data, for instance, has to gain endorsement from the card company licensee. In light of this – and other similarly onerous requirements – the country's legal culture is seen as disincentvising companies from broadening their offer into the financial services sector.
This year, in a bid to address these concerns, the country's Financial Service Commission (FSC) – the central government body responsible for financial policy and financial supervision – has announced a new commitment to nurturing the mobile-based e-commerce market, as well as a pledge to rescind any unnecessarily obstructive legal requirements.
As part of this legal revision, the FSC has undertaken to remove the compulsory authentication requirements for online purchases, while also introducing alternative online payment systems to provide overseas shoppers with easier access to the country's domestic e-commerce sites. This overhaul of the relevant regulations is expected to remove a number of the impediments currently stymieing the growth of the country's FinTech sector, while also providing a boost to its wider financial services industry.
This new and more open approach is likely to provide ample opportunities for mainland and Hong Kong companies looking to enter Korea's FinTech sector. It will also prove a boon to Chinese tourists, streamlining the process by which they can complete mobile purchases in Korea.
In light of the Korea-China Free Trade Agreement (FTA), the two countries currently enjoy a degree of transparency and cooperation in the financial sector, something that will be only further enhanced by the proposed legal changes. This will see companies in the two countries better positioned to work together in other financial areas, such as audits, foreign exchange, and trade finance.
With a number of international players – notably Google Wallet, Buybutton and Applepay – said to be keenly watching the legal developments in Korea, it is clear that the country is set to the next great commercial front for mobile transactions. Meanwhile, observers of the Korean bureaucratic regime are advising that "considerable patience" may be required before these commitments to change become a reality.
Jason Jeong, Seoul Consultant