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Thu, February 3, 2022 | 03:49
Non-banks
Embracing failure vital to foster fintech growth
Posted : 2019-08-12 16:34
Updated : 2019-08-13 09:23
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Booths of financial firms, tech companies and fintech startups are set up at the first Korea Fintech Week held in May. / Yonhap
Booths of financial firms, tech companies and fintech startups are set up at the first Korea Fintech Week held in May. / Yonhap

Only 2 Korean firms make it on list of world's top 100 fintech firms

By Kim Bo-eun

Despite Korea's advanced ICT infrastructure, the country has yet to produce globally noted fintech players.

Only two out of 400 Korean firms in the sector made it on KPMG's list of the top 100 fintech companies in 2018 ― mobile payment platform Toss and DAYLI Financial Group, a provider of data tech solutions.

The U.S. had 18 companies on the list, the U.K. 12 and China 11. Chinese companies Ant Financial, JD Finance and Baidu took up three of the top five.

The U.S. and China also dominate in big tech companies that offer financial services.

Booths of financial firms, tech companies and fintech startups are set up at the first Korea Fintech Week held in May. / Yonhap

Experts said one of the biggest reasons Korean players lag behind in the global market is that the government's approach to new initiatives and regulatory environment not conducive to newcomers, and help is given to prevent small companies from failing, rather than letting them learn from and survive failure.

More specifically, the Korea's current regulatory framework, known as "positive system," bans everything except for what is allowed, but calls have grown for the system to be changed toward "negative system" so that everything is allowed with the exception of what is banned. The latter framework grants more liberty to players.

They explained that under the current system, it is difficult to create innovative and disruptive new services as the regulations and licensing requirements tend to protect existing financial services companies and focus on helping new players avoid failures.

"China cites the government's patience and liberty it allowed to players until side effects emerged as the backdrop of fintech's development there," Bank of Korea Governor Lee Joo-yeol said earlier this year.

China's big tech and fintech firms grew explosively over years of an unregulated environment, and the government only recently took a stricter stance to control risks. Still, the approach to regulations is balanced.

Jung Yoo-shin, who heads Fintech Center Korea, said in a recent interview, "In Korea, initiatives face regulations first."

The government is allowing regulatory sandboxes for fintech firms but only since April.

He claims a revised bill needs to be passed to allow unidentified customer data to be utilized for statistics for commercial purposes. The bill is pending at the National Assembly.

While becoming the first or among the first movers in the industry is key to wielding global influence, Korean fintech startups joined the industry years later compared to their foreign counterparts.

"This is because in Korea, financial firms such as banks were already offering convenient services for customers, leaving little room for the need for new services," a banking industry expert said.

This compares to the situation in China or the U.S., where opportunities have been much greater for fintech companies due to the unmet needs that were not covered by existing financial firms, the official said.

China, in particular, leap-frogged from a cash-based to digital payment system, as other forms of cashless payments such as cards hardly existed.

Another cited factor is the size of Korea's market, which is much smaller than China's.

Balance between safety, efficiency

"When a new sector emerges, the government should seek to strike a balance between safety and efficiency," said Park Sang-soon, CEO of fintech company Fin2B.

"However, the government placed a priority on safety over efficiency."

He noted that conflicts of interest that arose with existing financial firms when fintech players emerged would have put the government in a difficult position.

Another expert in the finance sector also cited the need for a conducive environment.

"Korea has no globally competitive fintech firms, with most copying models of foreign players," he said.

"For innovation to take place, an environment that enables failures and enables players to learn from such failures is necessary, but Korea has not provided such an environment."


Emailbkim@koreatimes.co.kr Article ListMore articles by this reporter



 
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