BOK sees bigger role in fintech

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BOK sees bigger role in fintech

The Bank of Korea released a report on Tuesday that projected nonfinancial companies will play a bigger role in the country’s finance industry as digital banking technology continues to grow.

The central bank also said it might consider issuing digital currency in the near future to keep up with changing paradigms in finance.

Nonfinancial companies, including many global companies, are entering Korea’s financial market by opening up internet-only banking systems and introducing financial technology, or fintech, services. The central bank’s report projects competitiveness in the market will continue to strengthen with technology development.

The report cited research by PricewaterhouseCoopers that showed 23 percent of global financial institutions were concerned their business would be threatened within five years because of fintech.

“Nonfinancial institutions that have the technology will play a bigger role in businesses such as consumer banking, money transfers and transactions, investments and asset management that are currently mainly run by financial institutions,” the report said. “Digital technology development will improve accessibility to financial services, lower costs and improve the quality of service, and it could help the global economy grow once again as a new growth engine.”

Tools like the blockchain, a type of digital ledger, and artificial intelligence have been introduced in the financial market, and more services have been developed around them, the report said.

The Bank of Korea argued that new technology will allow more small firms to enter the market and lower people’s reliance on a small number of large financial institutions. This will also lower the possibility of one financial institution or group of institutions causing a system-wide collapse, the report said.

“At the same time, new risks will rise, such as those coming from nonfinancial institutions managing people’s privacy,” the Bank of Korea noted. However, the report added that such drastic changes in the financial market won’t happen right away since the technology still has a long way to go.

Nonfinancial institutions began entering the financial market in the 1990s with the emergence of the internet, according to the Bank of Korea. Their role in the market picked up starting around 2010 with the advent of smartphones.

The report recommended the government come up with flexible regulations that will help technologies for the financial sector grow faster and create an environment where fintech-related firms can compete fairly in the market.

The report said the central bank needs to consider issuing digital currency while helping more nonfinancial institutions enter the country’s financial market.

“Financial institutions should be open to the paradigm change in the financial market and cooperate with fintech firms to be prepared for digital innovation, while nonfinancial institutions should focus on managing possible risks coming from the digitalization,” the report said.

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