"Lift Regulations"... Banks and Fintech Raise Voices Toward Yoon

Fintech Industry Association Preparing Policy Proposals for Next Government
Banks Also Taking Action... Drafting 'Banking Sector Recommendations'
Banks Seeking Expansion Beyond Finance, Fintechs Aiming for Full Financial Entry

President-elect Yoon Suk-yeol is entering the 20th Presidential Transition Committee set up at the Financial Supervisory Service Training Institute in Tongui-dong, Jongno-gu, Seoul, on the morning of the 1st.
[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Following the banking industry, the fintech (finance + technology) sector is also preparing policy proposals for the next government. While the large banks are ironically claiming a ‘tilted playing field’ and urging permission to enter non-financial businesses, the fintech industry is raising its voice to be allowed to cross over into traditional financial businesses. It appears they are clashing over expanding their business domains.

According to the financial industry on the 1st, the Korea Fintech Industry Association held a board meeting the day before and decided to deliver ‘Policy Proposals for the Promotion of the Fintech Industry’ to the next government. They plan to draft a preliminary outline early this month to convey the core tasks and then finalize and present detailed policy proposals. Through this, they intend to urge the passage of the amendment to the Electronic Financial Transactions Act (EFTA), which has not passed for years, the establishment of regulations for the virtual asset industry, and the reform of the innovative financial services system.

In particular, the amendment to the EFTA is a long-standing wish of the fintech industry. Since last year, the Financial Services Commission has been pushing for the passage of the amendment, but progress has stalled due to conflicting opinions among big tech, fintech, and financial companies. It seems they want to strongly push again with the inauguration of the new government as an opportunity.

The recently discussed EFTA amendment mainly includes allowing comprehensive payment settlement operators and introducing payment instruction transmission services (MyPayment). If comprehensive payment settlement operations are permitted, fintech companies will also be able to issue accounts. With the introduction of MyPayment, the complex intermediary process involving customers, customers’ banks, merchants’ banks, and fintech companies will disappear, enabling fund transfers between accounts through ‘payment instructions.’ Additionally, a post-payment function will be introduced, and an electronic payment transaction clearing institution will be established. This effectively removes barriers so fintech companies can directly compete with financial institutions. This is why the banking industry is most wary of this issue. Other demands are expected to include establishing regulations for virtual asset businesses and reforming the innovative financial services system.

Meanwhile, the banking industry also plans to strongly voice its opinions to the next government. The day before, the Korea Federation of Banks drafted a preliminary version of ‘Banking Industry Proposals’ containing the demands of the banking sector. After reviewing it, they plan to submit it to the Presidential Transition Committee within this month.

The proposals are expected to include requests to unlock restrictions so banks can enter areas beyond banking, such as allowing virtual asset-related businesses like custody and removing limitations on trust systems and discretionary investment businesses. While the fintech industry demands entry into finance, the banking industry is asking to expand outside of finance.

Banks currently can enter non-financial businesses if designated as innovative financial services under the ‘Financial Regulation Sandbox,’ but they argue that the regulatory exemption period is limited to four years, restricting their entry into non-financial businesses. They also claim that the EFTA amendment is excessively favorable to fintech, calling it a ‘tilted playing field.’ Therefore, they are requesting permission to enter non-financial businesses. According to the Act on Structural Improvement of the Financial Industry (Financial-Industrial Integration Act), financial companies must obtain approval from the Financial Services Commission if acquiring more than 20% of shares in non-financial companies. The Banking Act limits banks’ shareholding in non-financial startups to 15%.

On the other hand, fintech companies are also highly dissatisfied with the current innovative financial services system. They say it is impossible to gauge how the application process proceeds or when approval will be granted. A fintech industry official said, “Many have invested tens of billions of won relying solely on being designated as innovative financial services, but the approval process takes forever. The system needs to be reformed so that the progress status can be accurately understood and responded to.”