Korea pins economic hopes on the rise of fintechImagine being able to order new supplies of your favorite instant ramen by placing your smartphone on the surface of the ramen pack for a second. The near-field communications chip in your smartphone will read the product information, make the order - and also make the payment.
In around four years, you will no longer see in Korea one-time password tokens, security cards or authentication certificates, a bane of contemporary online life.
All you will need is a smartphone. It will know the swirl of your fingerprints, or the pattern of your iris. It will replace banknotes and plastic cards.
In the next three to five years, IT powerhouse Korea will transform into a fintech-powered economy as the marriage of finance and technology opens up a world of possibilities - and possibly a new growth engine for the struggling Korean economy.
With a strong drive by the Korean government to overhaul the country’s financial industry, traditional financial institutions and tech companies are putting their heads together or competing intensely to produce innovative financial services.
According to estimates by the Financial Services Commission, there are about 360 fintech start-ups in Korea already, with around 25,600 employees as of late last year. The government has invested a total of 273.3 billion won ($239 million) in 296 start-ups. In the private sector, about 220 billion won investment has been made in fintech businesses.
Growing investment in the industry is a global trend. According to a study by Accenture, growth in fintech investment is forecast to continue in 2016, especially driven by Europe and Asia.
In the first quarter of this year, the total fintech investment reached $5.3 billion worldwide, a 67 percent increase over the same period last year, the study showed. The percentage of investments going to fintech companies in Europe and Asia-Pacific nearly doubled to 62 percent.
“The drive for fintech innovation is spreading well beyond traditional tech hubs,” said Richard Lumb, Accenture’s group chief executive for financial services. “The so-called ‘Fourth Industrial Revolution’ is a global phenomenon that brings new innovation and digital companies that compete and collaborate with traditional financial services. Bank customers stand to gain from this.”
In 2015, total global fintech investment ballooned 75 percent to $22.3 billion. In the Asia-Pacific region alone, fintech investment more than quadrupled to $4.3 billion.
“The proportion of competitive fintech ventures in Europe and Asia is much higher than in North America, which largely reflects the earlier stages of maturity of fintech markets, particularly outside of London,” said Julian Skan, a managing director in Accenture’s Financial Services group who oversees the FinTech Innovation Lab London.
Korea is one of promising fintech countries in Asia, experts say, with the backing of its highly wired environment and cutting-edge technologies.
“Korea’s major strength is its outstanding IT infrastructure,” said Kim Hyoung-joong, a professor of information security at Korea University. “There are few countries with IT infrastructures as good as Korea’s.”
What hinders development of the fintech industry in Korea are tight regulations and high entry barriers to the financial industry.
“Korea’s weakness, on the other hand, is regulation,” Kim said. “It needs deregulation to liberalize financial services like remittances through private companies.”
After learning from global fintech leaders Alibaba in China and Paypal in the U.S., Korea’s financial regulator is trying to nurture fintech start-ups and lift regulations that are considered obstacles. The FSC has lifted or eased as many as 11 rules or regulations that impacted new fintech services over the past one year.
As a result, starting with the launch of a new crowdfunding platform by revising the Capital Market Act in January, the nation is going to approve big data businesses, robo-advisory services, web-based banks and innovative payment and remittance services of great variety this year.
“Things have changed so fast over the past one year since the government started creating an ecosystem for fintech start-ups,” said Jung Yoo-shin, professor at Sogang University. “Consumers will be enjoying ‘finance in their hands’ in the near future, which means financial services will become more consumer-focused.”
For the sake of convenience to consumers - a top priority in the new mobile environment - IT companies are aggressively pitching ideas to improve existing financial services and challenging conventional financial institutions.
However, there is a negative impact to be expected on the traditional financial industry across the globe.
According to a recent report by Citigroup entitled “Digital Disruption,” about 1.7 million workers in the U.S. banking industry worldwide will lose their jobs over the next 10 years. Banks would slash human workforces due to automation of branch operations and expansion of mobile banking services, the report said.
“The influence of fintech development will vary from country to country,” said Shim Yoon-bo, a researcher at Hana Institute of Finance.
Fintech businesses account for over 2 to 3 percent of the revenue of retail services in the U.S. and European banking sector, while those in China account for as much as 96 percent of e-commerce.
Goldman Sachs recently hired about 9,000 tech staffers, a fourth of its total workforce, to respond to the changing financial environment.
“Korean financial institutions also need to learn from such a case to take preemptive action against changes in the market,” Shim said.
BY SONG SU-HYUN, KIM JI-YOON [firstname.lastname@example.org]
with the Korea JoongAng Daily
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