With advances in information technology (IT), the border-busting forces of the Internet and mobile finance are getting stronger day by day. Accordingly, the growth of the fintech industry, which uses technology to make financial services more efficient, has been accelerating.
However, the Korean fintech industry has yet to show robust cooperation and synergistic effects owing to the nation’s rigid regulatory environment and a lack of mutual understanding between finance and IT. Against such a backdrop, the government carried out drastic regulatory reform and opened the Fintech Center in March last year in order to galvanize cooperation between fintech startups and the financial world.
Sogang University Professor Jung Yoo-shin, Head of the Fintech Center, recently gave an interview to The Korea IT Times. He said: “Over the past year, we have taken various measures to help the IT industry join forces with the financial industry in varied ways. When entrepreneurs or entrepreneur-to-bes bring their revenue models, we offer them mentoring services.”
The Fintech Center holds Demo Day once a month, where startups are offered the opportunity to set up their own promotional booths and meet with potential investors.
Last year, roughly 270 startups took part in Demo Day; approximately 30 startups actually signed MoUs with investors.
Jung mentioned: “Infrastructure is crucial for the fintech industry to furnish various services. To that end, the fintech industry should be given unbridled access to data held by financial companies. If financial companies’ data is fully disclosed, however, problems like personal data leaks can surface. Thus, some have proposed the idea of collecting data as public goods.”
Last year, Nonghyup Bank took the lead in collecting data. Furthermore, in collaboration with the Korea Financial Telecommunications & Clearings Institute, 18 banks have built an open application programming interface (API) platform.
CSS (Credit Scoring System) holds the key to revving up only-only banks.
“At S. Korea’s fledgling fintech market, online-only banks have the potential to become a disruptive force that can make a play for financial incumbents’ métiers, change the market or create a new market,” Jung said.
He mentioned that online-only banks’ first order of business should be setting up airtight security system that can protect their branch-less and non-face-to-face business.
“If their services were temporarily suspended or they had poor systems in place, customers could easily lose faith in only-only banks,” Jung worried.
“When it comes to managing customers with relatively low credit ratings, having a credit scoring system in place, which approves or rejects a loan application, is all important. The foundation for CSS has yet to be firmly laid in South Korea. Although what NICE Investors Service is doing is the closest we have to CSS, its work is limited to borrowers on the verge of becoming credit delinquents,” Jung added.
In other countries, non-financial information and reputational information, obtained through social networking sites, Kakao Talk, etc., are used in rating a person’s creditworthiness. Then banks screen out those who are likely to delay payment and have a high probability of default (PD) and offer mid-interest loans to suitable candidates.
The lack of big data technology and the absence of Korean fintech for asset management
The Fintech Center’s 2016 goal is to assist banks in adopting various pilot services and help the public actually use those services. To that end, building a sustainable security ecosystem is a prerequisite.
“Security systems can be breached any time. Hence detecting and fixing a security breach in in the fastest possible manner is more important than anything else,” Jung said.
For a small-sized business, it will be difficult to put aside some money in an emergency fund for financial surprises. Thus, if customers suffer losses due to a security breach, small businesses will face a challenge. Jung believes that insurance companies should be encouraged to step in to address such a problem.
Also, Jung recommends that financial authorities should set up a staged warning system (e.g. yellow and red levels) to put limits on financial transactions when they judge that some only-only bank’s security system appears problematic.
As regards Korean fintech companies’ entry into overseas markets, Jung said: “This year, 4-5 events related to fintech investment are scheduled to take place. Korean fintech is mainly focused on making payments, sending money and offering loans. In the long term, I hope Korean fintech will move towards asset management, which is the most happening sector in the developed world.”
South Korea takes on the characteristics of a good test market where information is verified fast though Kakao Talk and social networking sites. Once a network route is set up based on such a fast feedback system, the size of the Korean fintech market can be increased,” Jung stressed.
Regarding technical partnerships between fintech startups and financial incumbents, he pointed out “Financial incumbents still put in place lofty barriers to entry.”
Unified Korea-China-Japan e-commerce paved the way for opening an online export/ import window.
The growth of borderless online-only banks has been gathering speed, moving their services onto the internet and then to mobiles. In the global market, the potential of the capital market is bigger than that of banking. At the capital market, even if customers deposit money into their stock trading accounts, trading value can vary. The growth of the secondary market, also called the aftermarket, depends on how the money is securitized.
“It is very significant that S. Korea, China and Japan have recently opened an online export-import window by unifying their ecommerce systems,” Jung mentioned.
Product competitiveness has been thus far determined by price and quality. In this ecommerce era, there is one more: safe, speedy delivery of products. Chinese e-commerce company Alibaba has already established a same-day delivery system in 51 large cities after conducting detailed analyses of each locale’s gender ratio, ethnic groups and products in high demand by exploiting big data analytics.
