Small Payment Service 'OO Pay' Joins Payment System Just Like Banks

Bank of Korea and Korea Financial Telecommunications & Clearings Institute to Improve Small Payment System Participation Rules
Scheduled for Monetary Policy Committee Approval on the 24th

Same Standards for Banks and Supervision
"Same Business - Same Risk - Same Regulation Principle"

[Asia Economy Reporter Kim Eunbyeol] In the future, 'OO Pay' companies such as Naver and Kakao will be able to participate more easily in the small-amount payment settlement system. Fintech companies established in the future will be able to build payment systems without going through financial institutions under the same conditions as commercial banks and securities firms. However, to participate in this system, they must also undergo supervisory procedures under the same standards as financial institutions.

On the 5th, the Bank of Korea and the Korea Financial Telecommunications and Clearings Institute (KFTC) announced that they have reviewed related regulations in preparation for the potential expansion of the small-amount payment settlement system, which currently involves 61 institutions, and established improved participation criteria. As of the end of May, participants in the small-amount payment system are limited to the Bank of Korea, 18 domestic banks, 9 foreign bank branches, 6 community financial institutions, 26 financial investment companies, and the post office.

The payment settlement system refers to a system that settles creditor-debtor relationships arising from economic activities not by cash payment between parties but through the transfer of monetary value. It includes participating institutions, payment instruments, and interbank settlement systems. Until now, banks have participated directly in the payment settlement system, while non-bank financial institutions such as securities firms and the Korea Inclusive Finance Agency have participated indirectly through banks. At the end of last year, fintech companies were allowed to use the open banking joint business system, and now they can participate both directly and indirectly. Customer fund transfers through the payment system operated by KFTC are finally settled between financial institutions via the Bank of Korea’s financial network using a net settlement method.

The current regulations have acted as a barrier to entry for fintech companies entering the market. To use financial transactions such as transfers, the system must be used, but the legal status of fintech companies was unclear. Accordingly, the Bank of Korea changed its policy to allow participation in the system as long as the same obligations are borne. It means that the company will be accepted into the system depending on whether it can fulfill the obligations related to system participation, regardless of whether it is a bank, securities firm, or the Korea Inclusive Finance Agency. Hong Cheol, head of the Payment Policy Team at the Bank of Korea’s Financial Settlement Bureau, explained, "With the recent convergence of information and communication technology and finance, the provision of payment services by non-financial institutions such as fintech companies has increased, raising the need to improve the small-amount payment system."

However, newly established fintech companies must meet certain requirements just like banks. They must satisfy conditions such as ▲opening a current deposit account at the Bank of Korea ▲joining the Bank of Korea’s financial network ▲allowing joint inspections by the Bank of Korea and the Financial Supervisory Service (including data submission) ▲possessing the ability to manage net settlement risks. Team leader Hong said, "We intend to apply the 'same business - same risk - same regulation principle,'" adding, "If fintech companies wish, they can participate in the same way as financial institutions, but they must manage risks and comply with regulations equally." He also added, "While applying the same regulations as banks, companies can participate in a way that suits their circumstances, choosing between direct participation in the system or establishing a payment system by other means, whichever is more profitable."

Meanwhile, this regulatory improvement is scheduled to be implemented after the resolution of the Bank of Korea’s Monetary Policy Committee regular meeting on the 24th.