INTERVIEW Fintech newbie keeps migrants away from risky cash delivery
Customers at GME Remittance's Dongdaemun branch in Jongno-gu, Seoul. Courtesy of GME Remittance
GME Remittance CEO John Sung decries banks' domination in the industry
By Ko Dong-hwan
Banks play an important role in society, but for some people access to their services is difficult, if not impossible.
This is especially so in developing regions and Third World countries. There, people do basic monetary transactions in down-to-earth ways, relying more on human hands than the computerized systems of conventional banking.
Many migrant workers in Korea from such regions have opted for this method for transferring their hard-earned money home because they are unable to wire it through banks as those it is destined for do not have bank accounts.
They have used “transporters,” who are entrusted with cash from multiple senders to deliver it. But the carriers sometimes disappear with the money.
Besides the theft risk, the delivery breaks Korean law, which requires personal effects and cash worth $10,000 or more to be declared at border custom offices.
John Sung at GME Remittance's headquarters in Jongno-gu, Seoul. Korea Times photo by Ko Dong-hwan
John Sung, CEO of non-bank overseas remitter Global Money Express Remittance, based in Seoul's Jongno-gu district, saw a market for his company's services in helping migrant workers send money home.
The former LG Electronics overseas branch head in Australia and Malaysia said only 20 percent to 30 percent of people in Southeast Asia, where most of the workers are from, have bank accounts.
“Even if a foreign worker went to one of the 16 major banks in Korea and transferred money to his family members in their homeland, chances are most of the receivers wouldn't have a bank account to receive the money,” Sung told The Korea Times. “If a person living in a mountainous Himalayan region in Nepal was to visit a local bank, he would have to travel a long distance to get to the nearest city. Would he possibly care for a bank account with such a physical hassle?”
GME allows money to be sent to people who do not have a bank account. Its foreign investment partners, top-tier banks in the Asian and CIS regions, have established thousands of “cash pickup points” across 24 countries.
When someone comes to GME to send money, the company checks their identity before issuing them a 10-digit password. The customer tells the cash recipient the password and location of the nearest pickup point. These are set up at pawn shops, and convenience or other small local stores. After providing the password, the money is handed over.
Pickup is available five minutes after the money is wired and the time of pickup is monitored in Seoul.
Banks in Korea were the only channel for overseas remittance until January 2017, when the revision of Korea's Foreign Exchange Transactions Act opened the business to non-bank entities. Courtesy of BNK Kyongnam Bank
Tourists also can use the service. They can send their cash to GME and withdraw it from a designated depot when they arrive at their destination. It saves them the hassle of carrying foreign currency or travelers' checks and they don't need a bank account to do it.
“I call this the cash pickup service,” said Sung. “It surpasses any similar service provided by current Korean banks. Ambassadors in Korea appreciate it for the safety and convenience it gives their nationals.”
Challenging banks
Sung worked for more than 20 years heading the LG overseas branches and running his own telecommunications firm in Kuala Lumpur that had 300 employees. During this time, he saw how markets in other countries were more open to the world and less strapped by regulations than Korea.
When he came across a mogul from the remittance industry operating across Asian countries, he learned that the service in Malaysia, Singapore, Hong Kong and other countries was provided by non-bank remitters at cheap rates, with speedy results. It was unlike Korea, where the service was exclusively offered by banks or the like with legal capital of 1 trillion won ($887 million) at least.
The first day of business at GME Remittance's Dongdaemun branch in Jongno-gu, Seoul, in October 2017. Courtesy of GME Remittance
“Living overseas, I saw a wide range of international remittance transactions happening globally but not in Korea,” said Sung, who envisioned that if the Korean remittance market was more open to non-banks and state regulations eased, the service would thrive there.
He established GME in 2016 with one employee and began searching for markets. He saw that for his company to succeed, the Foreign Exchange Transactions Act under the Ministry of Economy and Finance must be revised to allow non-banks to operate overseas remittance business. A Japanese law revision allowing this was made in 2011 and Korean fintech operators demanded lawmakers do the same.
“Korea back then must have been one of the last countries in Asia to have allowed the service to non-banks,” Sung said.
In January 2017, the Foreign Exchange Policy Division, under the ministry's International Finance Bureau, revised the third clause of the transactions act's Article 8 about foreign currency dealers. It allowed non-financial entities to engage in the industry once they passed standards to be authorized under a presidential order. The move shattered the banks' almost 60-year monopoly in the industry.
In July that year, GME passed the standard for an overseas remittance business license, becoming the country's first non-bank entity in the industry. Twenty-two other applicants failed the standard, while E9 Pay joined the field six months later.
The day it opened for business in October 2017, the three GME branches were packed, accepting nearly 7,000 customers in the first month. As of January 2019, GME runs seven branches in Seoul, Gyeonggi Province and Busan. It has signed investment partnerships with Nepal's Global IME Bank, Cambodia's Wing, Sri Lanka's Commercial Bank of Ceylon, Indonesia's BNI and another top-tier bank covering the CIS region. GME splits the profits 50-50 with them.
Sung is scathing of the Korean banks' role in the industry, attacking their expensive overseas remittance fees.
Transferring 3 million won overseas using Korea's Woori Bank includes a telegram surcharge, remittance surcharge and post-transaction surcharge, amounting to $38. At Hana Bank, an overseas surcharge of $20 is made instead of a post-transaction surcharge. An additional “payout fee,” unknown to senders and remitting banks, of around $20 is charged by the local banks when the cash is withdrawn. The total cost is nearly $60.
GME simplified the fees to 5,000 won, with no hidden charges. Its app shows exactly how much the receivers will get after the fee deduction.
“We've reduced the banks' egregious rates to affordable levels because we have stronger competitiveness,” Sung said.
Cambodian Ambassador in Korea Long Dimanche, third from left, and John Sung, third from right, and associates of Wing join the service launch ceremony in front of GME Remittance's branch on Culture Street in Ansan, Gyeonggi Province, in February 2017. The celebration came after GME signed a partnership with the Cambodian bank. Courtesy of GME Remittance
State hurdle
Korea's finance ministry limits the amount non-bank entities can remit for each customer to $3,000 at a time, with a yearly cap of $30,000. Sung says the limits are too low.
“The limits hinder college students studying abroad who need $20,000 to pay for each semester tuition and businessmen doing international trade,” Sung said. “Higher limits will give more room to move even for a small-size trader as the company can wire money overseas through GME at lower fees than banks and increase its global competitiveness.”
With the limits in place, GME can only support migrants, who on average transfer about 1 million won a month overseas.
A foreign exchange policy division official told The Korea Times that the remittance caps will remain for now as the law is relatively new.
“With the growth of the Korean fintech industry backed by government support, many non-bank entities have become tech-savvy enough to process overseas remittances,” the official said. “The ministry, aware of the expensive bank fees, loosened the regulations to improve consumers' convenience by allowing them to use non-bank firms, as long as the remitting amounts are small.”
The former Korean minister of economy and finance Kim Dong-yeon speaks during the minister-level innovative growth meeting at Seoul Government Complex in Jongno-gu, Seoul, in September 2018. Yonhap
He said large sums must be remitted through banks to prevent the risk of foreign currency diversion and funds falling into the hands of terrorists.
“Now is the time to monitor and fix any side effects transpiring from transactions involving non-bank companies,” the official said. “The bars will eventually be raised after that verification period.”
Sung hopes that once the ministry increases the non-bank remittance limits, GME can better compete with the banks and achieve the goal of $3 billion of customer transactions by next year. That's 7.5 percent of the entire Korean private overseas remittance market estimated for 2017.
Sung appreciates the multinational aspect of his company as only 15 of over 60 employees are Koreans, with the rest speaking 10 languages. He has put marketing managers of different nationalities in charge of their own ethnic groups, believing in the power of cultural links.
“Our goal is meeting migrant workers' various demands,” said Sung, who expanded GME's business in December 2018 to loans and finance as part of his mission to make his company a total fintech service provider.
“To complete the objective, state hurdles must be mitigated,” he said. “Global trends have been pushing national markets to follow so their global competitiveness can grow and consumers can benefit from cheaper costs and more convenience. If they aren't pursued, a few exclusive operators will go unchallenged without motivation to grow and so will eventually perish.”