Card firms uneasy about big tech credit biz

By Kim Bo-eun

The Credit Finance Association Chairman Kim Joo-hyun speaks during a seminar held July 8, where he urged card firms to innovate their businesses. / Courtesy of the Credit Finance Association

Card firms are experiencing an increasing sense of uneasiness, as Big Tech firms, such as Naver and Kakao, advance into their business territory.

The government on Sunday stated tech companies and fintech startups will be able to enter into the credit business. This is part of a set of new initiatives taken by the government to promote innovation in the financial services sector.

The Financial Services Commission (FSC) said it aims for relevant revisions to be made to existing regulations to enable new services to be offered next year at the earliest.

Tech firms such as Naver offer easy payment services, through which users can make payments by charging money to their accounts or using credit cards.

Under the model the government has approved, users of Naver Pay will not only be able to make payments using cash stored in their accounts, but be able to make up to 300,000 won in additional payments even if they do not hold the money in their account. The money will be paid back later. This is essentially the credit business of card issuers.

The limit has been set at 300,000 won, which may not seem high, but card firms state that the cap will likely be raised over time.

"What holds greater significance than the limit is the fact that the government has enabled tech firms to start a credit business," an official of a card firm said.

"Based on the government's stance of fostering fintech services, it is likely that the limit will be raised."

More players in the credit business means card firms may lose dominance in the market.

Lighter regulations for tech players are also considered a problem, as this may lead to financial soundness issues that could affect financial consumers.

Card issuers are governed by the credit financial business act, while tech companies must follow the electronic financial transaction act, which is more lax in its regulation of financial services.

"Banks and card firms manage risks according to knowledge built from decades of experience and according to regulations," the official said.

"But for fintech entities, different regulations are applied. This exposes financial customers to potential risks.”

Card firms also state applying different regulations is unfair.

"It is only fair that entities assuming the same business receive equal treatment," the official said.

Authorities have pledged to address the issue of unequal treatment and also establish a system to ensure consumer protection, such as by making tech firms set up a bad debt provision.

"We will manage business' financial soundness and also come up with a system to protect financial consumers," the FSC said.

The government's unveiling of plans come at a time when big tech firms are taking strides into the financial services sector. Their competitive edge is their platforms which attract massive amounts of traffic. Naver and Kakao also hold large pools of data as e-commerce platforms. The companies are quickly expanding and diversifying the financial services they offer.