Source: South Korean Financial Services Commission (FSC)
The move is part of a strategy to further develop the fintech market in the region. The use of a digital sandbox will enable fintech service providers to trial their new products on the market, while consumers can find new services.
South Korea has a burgeoning fintech industry. The country’s open banking system was launched in December 2019. Fintech firms can access banks’ payment network and pay lower transaction fees through several open API initiatives.
Fintech was also named one of the top priorities for South Korea in 2020. The government pledged its full support for the industry and set aside a budget of US$16m to grow the sector, which is up 96.1% from 2019.
New fintech services
The isolation of the sandbox ecosystem means new programmes can be piloted and monitored independently of other services. The sandbox environment also provides support to services and products that are at an early stage in development.
The process generates information that is critical to streamlining operations and modifying products to ensure they are fully market-ready. Data has become increasingly pivotal to the way firms operate and engage with each other and the consumers they serve.
The news will be welcomed by leading entrepreneurs in South Korea. SG Lee, the CEO and Founder of Toss, South Korea’s sole fintech unicorn, valued at US$2.6bn, said recently, “There are so many gaps in the financial services ecosystem in South Korea. For example, only 9% of millennials trade online, and only 10% accessed unsecured loans online vs. over 50% in the US.”
The low adoption rates of fintech services in South Korea, is largely due to the positioning of incumbent banks. Some reports suggest as much as 40% of the population is underserved. However, South Korea is also among the world’s most technologically advanced and digitally connected countries; it has the third most broadband Internet users among the OECD countries and is a global leader in electronics, digital displays, semiconductor devices, and mobile phones.
These factors make it a prime environment for propagating fintech services. The COVID-19 pandemic has also boosted the digital services industry.
The FSC has outlined the work it has planned this year to promote financial innovation and digital finance. The new digital sandbox which will enable fintechs to test their new business ideas virtually will be launched in June, although a final date is yet to be confirmed.
The FSC formally launched its flagship financial regulatory sandbox in April 2019. So far, the regulator has designated 137 ‘innovative financial service’ providers since launching.
According to reports, there are further plans to improve the management of the regulatory sandbox programme. The FSC is also keen to establish a more comprehensive support system through legislation that will focus on nurturing fintechs throughout 2021.
The work is already beginning, with Q1 seeing the start of financial support from state-backed financial institutions and private sector investments, the FSC pledged.
Part of the initiative is to promote more use of online fintech services across all industries. The regulator is also working on initiatives to encourage the use of big data analytics and enhance authentication and identity verification systems for financial services.
Furthermore, the FSC has agreed to tighten up its rules on network separation to facilitate telecommuting by staff at fintechs and financial institutions. Rules on data privacy to improve consumer rights to data and ensure they are fully informed of any data transfer risks will also be under scrutiny.
Additionally, new infrastructures will be set up throughout 2021 to provide smoother convergence of data stored at financial institutions and across different industries. Consumer safety guidelines and new testbeds dedicated to AI-based financial services will also promote the development of such services.