New Government Inauguration... Financial Sector's 'Hot Potato' Interest in Introducing Jongji-eop

Card-Big Tech Companies Temporary Alliance VS Banking Sector Backlash... Insurance Industry Also Likely to Join the Fray

[Asia Economy Reporter Yoo Je-hoon] With the launch of the new government, attention is focused on whether discussions on the introduction of the "Comprehensive Payment Service Providers (hereinafter referred to as 종지법)"?which had been stalled for about two and a half years?will gain momentum again. While card companies, which need to find future growth engines, and the fintech industry, aiming to dominate the payment market, are cooperating like "Owol Dongju (吳越同舟)" to introduce the 종지업, the banking sector, which faces the risk of having to share its exclusive domain of account opening, is opposing it.

According to the financial sector on the 10th, the Credit Finance Association held a meeting the day before the new government’s launch with Yoon Jae-ok, Chairman of the National Assembly’s Political Affairs Committee (People Power Party), and CEOs of member companies, requesting the prompt passage of the amendment to the Electronic Financial Transactions Act for the introduction of 종지업. In addition to Chairman Yoon, Kim Joo-hyun, Chairman of the Credit Finance Association and a candidate for the next Financial Services Commission Chairman, and many CEOs of member companies attended the meeting.

The 종지업, for which the association requested prompt introduction, is a system that allows non-bank institutions such as card and fintech companies, which meet certain requirements and receive approval from financial authorities, to perform account opening tasks currently limited to banks and securities companies. Although interest payments on deposits and loan services are not permitted, services such as remittance, transfers, salary accounts, and insurance premium payments are allowed. Since it enables cost reduction in transactions through account opening and entry into various ancillary businesses, card and fintech companies specialized in payment services will have a path to perform functions comparable to banks. The amendment to the Electronic Financial Transactions Act containing this provision was originally proposed by Assemblyman Yoon Kwan-seok of the Democratic Party in November 2020 but has remained pending in the Political Affairs Committee for about two and a half years amid ongoing controversy.

Recently, the insurance industry has also joined the discussion. The Life and Non-life Insurance Associations requested regulatory relaxation for entry into 종지업 to the Presidential Transition Committee last month. Until now, discussions on the introduction of 종지업 have centered on card companies and fintech industries, but the request is to extend this to the insurance industry as well. However, some criticism has emerged questioning whether it is necessary to allow insurance companies to enter 종지업.

The hurdles to amending the Electronic Financial Transactions Act remain high. The banking sector and the National Financial Industry Labor Union continue to oppose it on grounds of "big tech favoritism" and "threats to financial stability," and the opposition bloc holding 172 seats has been at odds with the administration from the start.

The conflict between the Financial Services Commission, which seeks to introduce 종지업, and the Bank of Korea, which opposes it, is ongoing. Lee Chang-yong, Governor of the Bank of Korea, previously stated in his confirmation hearing materials that "some provisions, such as mandatory external clearing for big tech companies and institutionalization of clearing businesses, may undermine the safety of the payment system and conflict with the central bank’s payment system operations, so these parts should be excluded from the amendment discussions."

Nevertheless, the industry believes that under the new government, the amendment to the Electronic Financial Transactions Act is likely to regain momentum. The Presidential Transition Committee has expressed its intention to improve regulations on the scope of financial companies’ business in a manner suitable for the Big-blur era in its previously announced 110 national tasks. The ruling party, People Power Party, is also expected to soon begin preparing related new legislation. A financial sector official said, "Since this legislation was pursued under the previous administration and the ruling party has taken a progressive stance on the introduction of 종지업, we view this positively."