[Square] The Evolution of Fintech Led by the MZ Generation, Starting Point: Amendment of the Electronic Financial Transactions Act

The financial sector's pursuit of the MZ generation is intense. Born between the 1980s and early 2000s, the MZ generation has been classified as a customer segment with little asset and low profitability. However, recently, as they have emerged as key consumers of digital finance with a high acceptance of new services, not only fintech but also traditional financial sectors such as banks, credit cards, and insurance are struggling to devise strategies for them.

According to a survey conducted by the Korea Fintech Industry Association targeting 2,000 users of simple payment services in their 20s and 30s, the satisfaction score for simple payments was 8.71 out of 10. The most commonly used methods were fintech platforms like KakaoPay and Toss. An overwhelming 96% responded that they mainly use 'fintech' for simple payments, far surpassing traditional financial apps such as banks and credit cards.

Why do the MZ generation choose fintech over existing financial applications (apps)? The answer lies in convenience. In the previous survey, 9 out of 10 cited convenience as the reason for using fintech services. For the MZ generation, who are accustomed to digital usage and seek simplicity, fintech services that are friendly and convenient are naturally more attractive than the rigid and cumbersome traditional financial services. Fintech is at the center of the MZ generation's financial life.

Overseas competitors have long advanced fintech services by embedding fintech functions into their platforms, a concept called 'embedded finance,' going beyond merely brokering and reselling existing financial products by non-financial companies such as IT platform firms. Financial functions like simple payments or postpaid payments are provided on platforms that already have many users, such as secondhand trading platforms. Simply put, it is a fusion of non-financial and financial services.

Domestic fintech companies still seem to struggle to keep up with global trends. The licensing regulations in Korea are strict, making it difficult to crossbreed various financial and non-financial services. In particular, the Electronic Financial Transactions Act, enacted in 2006, has become outdated and urgently needs revision. In this regard, the amendment to the Electronic Financial Transactions Act proposed last year is expected to breathe new life into new business development.

Especially, the 'Comprehensive Payment Service Provider' included in the amendment will enable one-stop asset management such as salary transfers, credit card payments, and insurance premium payments through fintech platforms, raising expectations for the emergence of comprehensive financial platforms like Revolut in the UK.

Additionally, the newly established 'Payment Instruction Transmission Business' in the amendment allows the transmission of transfer instructions necessary for payment remittances without holding customers' funds. Since it does not directly hold customer funds, the regulatory level is lower, and the minimum capital requirement is not high. Innovative platforms with many users will be able to provide payment services at lower fees than before, and fintech startups will have a useful means to pioneer new paths in various ways.

Recently, The Wall Street Journal noted that Korea is becoming a cradle for startups, highlighting the shift of the industry's center from traditional conglomerates to startups. The reasons cited were the affluent and IT-savvy consumer population and the increase in workforce willing to work at startups. All of these form the foundation for the birth of domestic fintech unicorns.

The benefits of the amendment to the Electronic Financial Transactions Act are not exclusive to fintech. In a digital environment where boundaries between industries disappear, finance is a core function for growth. We hope the amendment will be passed soon so that innovative startups in various fields, including fintech, can actively emerge and grow as the future leaders of the Korean economy.

Ryu Young-jun, Chairman of the Korea Fintech Industry Association