Financial Companies and Big Tech Draw Third Parallel Line as Financial Authorities Emphasize 'Mutual Reciprocity' (Comprehensive)

Third Meeting of the Consultative Council Held After One Month
Son Byung-du, Vice Chairman of the Financial Services Commission, "Continuous Listening to Field Voices"
Financial Sector and Big Tech Still Divided Over Reverse Discrimination, Agreement Unlikely

[Asia Economy Reporter Kangwook Cho] "Discussions related to digital finance risk being bogged down in conflicts between financial companies and big tech (large information and communication companies), potentially stifling innovation momentum."

At 10 a.m. on the 21st, the 3rd Digital Finance Council was held at Front1 in Mapo-gu, Seoul. A representative from a fintech company stated this and emphasized, "Regulatory improvements must continue to keep pace with the rapid changes in the digital environment." Following the 2nd meeting held on the 24th of last month, this meeting, held about a month later, discussed advanced measures for open banking, including expanding participation of secondary financial institutions and small fintech companies, as well as challenges faced by big tech and fintech in the field and policy directions.

Son Byung-doo, Vice Chairman of the Financial Services Commission, who chaired the meeting, stressed, "Going forward, we will continuously listen to the voices from the field not only in the fintech sector but also from financial companies during the digital finance promotion process to ensure discussions can be held promptly." He added, "Since many issues and topics have been concretized through voices from the field and discussions, we will reorganize the discussion schedule for each issue and ensure that working-level subcommittee meetings are conducted systematically and intensively."

The Digital Finance Council was established last month as a public-private joint effort with the purpose of promoting financial innovation among financial companies, big tech, and fintech. Based on the tasks discussed by the end of the year, the goal is to prepare practical alternatives and announce them externally. So far, three official meetings have been held. However, the differences in positions between the financial sector and big tech/fintech remain tense. A representative from a big tech company stated, "The entry barriers to the financial market are still high," and argued, "Discussions should be held to lower these barriers and activate innovation."

On the other hand, the financial sector views big tech's entry into finance as the greatest threat to their survival, even more concerning than the impact of the COVID-19 pandemic. The most emphasized issue is resolving the regulatory discrimination between big tech and the financial industry. A representative from Financial Company A pointed out, "Since big tech's entry into financial services is a new phenomenon, it is difficult to regulate under the existing legal framework," and criticized, "Big tech tries to exploit blind spots to gain 'regulatory arbitrage.'"

For example, regulation of prepaid electronic payment instruments, a major financial service of big tech, is guided by supervisory regulations rather than laws. According to the 'Trends and Future Tasks of Financial Innovation from the Perspective of Financial Industry Structure' report by the National Assembly Research Service, the simple payment market is led by big tech, which mainly operates in non-financial sectors. Initially, about 30 companies entered this market, but as of last year, Naver Pay, Kakao Pay, and Samsung Pay accounted for about 57% of the mobile payment market.

Financial Companies "Regulatory Discrimination" vs. Big Tech & Fintech "High Financial Entry Barriers"

Data sharing issues are also cited by financial companies as examples of regulatory discrimination. With the review of 'MyData (personal credit information management business),' a core issue of the amended Credit Information Act, financial companies complain about the extensive non-financial data of big tech, platform network effects, and unfair data sharing regulations. A representative from Financial Company B stated, "Financial companies must provide all financial data, but big tech does not provide data that is not credit information under the amended Credit Information Act, so the starting line for the MyData business is different."

Big tech companies show a negative stance on providing information that does not fall under credit information. A representative from Big Tech Company C said, "If each party only insists on their own position, discussions may not progress," and pointed out, "It is necessary to prioritize judgment from the perspective of consumer welfare."

The problem is whether a proper conclusion can be reached as both sides continue to run on endless parallel lines. Initially, financial authorities planned to reach a consensus within this year, but due to the COVID-19 pandemic and the non-face-to-face nature of meetings, as well as criticisms that working-level subcommittee meetings are not proceeding properly, the process has been rocky from the start. There are even complaints that the financial authorities are just setting the stage for show without real substance.

At the seminar titled 'New Business Creation and Development Plans for Banks in the Post-COVID Era' hosted by the Korea Institute of Finance the day before, sharp confrontations related to the 'tilted playing field' issue were also evident.

During the panel discussion, Kim Ji-sik, Director of Naver Financial, criticized, "The fundamental reason the tilted playing field is being discussed is regulatory discrimination," and said, "The current financial market is monopolized with no competition at all."

On the other hand, Cho Jae-bak, Head of KPMG Digital Division, emphasized, "The recent talk about the tilted playing field concerns the MyData sector, where non-financial companies maintain their existing competitiveness while also taking financial data, which is the competitiveness of financial companies," and added, "Since platforms have very strong competitiveness as sales channels, how to address this through regulation or policy is an important issue."

Financial Services Commission "Mutually Beneficial Relationship Needed"… Fintech Companies Also to Provide Data

However, signs of a change in attitude from the financial authorities were noted at this 3rd meeting.

At the meeting, the 'Advanced Open Banking Measures' were discussed. Regarding this, the financial authorities announced that they will promote the advancement of open banking from the perspectives of scalability, reciprocity, and stability. In particular, from the perspective of reciprocity, the financial authorities demanded that participating institutions such as fintech companies also open their information, moving away from the previous practice where only banks provided information.

Vice Chairman Son stated, "For the open banking's open infrastructure to be sustainable, it is essential to establish a mutually beneficial relationship where existing participating institutions and newly participating institutions have a 'win-win' relationship."

He continued, "We will reasonably adjust the scope of data sharing and fee burdens so that financial companies and the fintech sector can have a mutually beneficial relationship," and emphasized, "We will move away from the existing method where banks unilaterally provide data, and fintech companies and newly participating institutions will also provide a certain level of data."