[Viewpoint] Key Issues in the Amendment of the Electronic Financial Transactions Act Following the Launch of the New Administration

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University

With the launch of the new government, many changes are expected in the financial system. In particular, there are high expectations regarding the revision of the Electronic Financial Transactions Act. If the rational improvement of the financial system is achieved through the revision of the Electronic Financial Transactions Act promoted by the new government, the financial industry is expected to change in a positive direction.

The main topic of the revision of the Electronic Financial Transactions Act is the allowance of comprehensive payment settlement business. Comprehensive payment settlement business essentially permits card companies, big tech companies, and others, similar to banks and securities firms, to issue payment accounts. This enables financial consumers to transfer funds, pay utility bills, and use account-based value-added services. Especially, by granting account issuance authority to card companies and big tech companies, competition in the payment settlement market is expected to be further stimulated. If competition in the payment settlement market intensifies, financial consumers will benefit from reduced transaction costs, improved service convenience, and various additional benefits.

The acquisition of licenses and operation of comprehensive payment settlement business by card companies will contribute to innovation in the financial industry and provide consumers with diverse value-added services. Card companies that have obtained licenses for the MyData business are currently fulfilling their role as the top data-sharing players in Korea. In the data exchange market, card companies have a superior record of data exchange compared to other financial industries and fintech companies. Additionally, card companies possess competitive big data analysis capabilities based on payment data secured at consumer touchpoints such as merchants. Card companies are also currently undertaking essential innovative financial service tasks required for comprehensive payment settlement business, including remittance, personal credit evaluation, and micro-investment.

Recently, various partnerships secured through card companies’ PLCC (Private Label Credit Card) business are also evaluated as an optimal network infrastructure that can return diverse consumer benefits to financial consumers. They have partnerships and collaborations with various companies such as retailers and shopping malls, providing sufficient competitiveness to be chosen as consumer payment methods. These capabilities and business experiences of card companies will clearly serve as a comparative advantage in performing comprehensive payment settlement business.

However, a series of recent security incidents are areas that card companies urgently need to address in performing comprehensive payment settlement business. From the perspective of consumers using account-based financial services, security incidents may cause hesitation in choosing payment methods provided by card companies. Therefore, efforts to advance card companies’ fraud detection systems (FDS) are required.

Meanwhile, separate provisions to curb market monopolization by big tech companies should also be included in the revision of the Electronic Financial Transactions Act. Whether to approve big tech companies’ entry into the postpaid payment business is a key issue to be discussed during the revision process of the Electronic Financial Transactions Act. The most important point here is to clarify the principle of same function, same regulation. In other words, it is essential to establish equitable legal provisions for fair competition between card companies and big tech companies. If the postpaid payment business of big tech companies, which has received special treatment from financial authorities under the ‘regulatory sandbox,’ is allowed through the revision of the Electronic Financial Transactions Act, prudential regulations related to risk management, such as provisions for loan loss reserves, should be imposed just as they are on card companies. Furthermore, institutional regulatory measures concerning excessive payment fee increases by big tech companies are also necessary. Just like card companies currently subject to regulation on the recalculation of eligible costs, big tech companies should also be institutionalized to be regulated on payment fee rates, which is a major issue in the revision of the Electronic Financial Transactions Act.

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University