Korean payment system to introduce open banking
Korea’s Financial Service Commission (FSC) has proposed a plan to establish an open banking system that would grant fintech firms access to banks’ payment network, in an effort to encourage development of new payment services and greater competition in the financial sector. The FSC also plans to overhaul the current regulatory framework on electronic financial business to promote innovation and competition in financial payment services.
The current financial payment network has a closed system accessible only by banks. Under the current system, banks are allowed to process their own bank account-based transactions only. Although banks jointly launched an open API
system in August 2016, the access to the API system has been limited to only a few fintech firms, charging relatively high fees of about KRW400-500 per transaction.
Against this backdrop, the transition to an open system will proceed in three phases:
- Banks’ voluntary agreement on open banking system. Banks agreed to open their payment network to all fintech payment service providers as well as other banks. That would enable customers to use a single application to access their accounts at different banks and make payments. Fees charged on fintech firms for using the network will be lowered to one tenth of the current level to ensure fair competition.
- Legislation on Open Banking. The FSC will propose amendments to the Electronic Financial Transaction Act to provide clear legal grounds for the open banking system. The amended Act will mandate all banks to offer payment service providers with standardize APIs for money transfer. It will also prohibit banks from any discriminatory action against payment service providers using their payment system in processing money transfer and charging fees.
- Fintech firms’ direct access to financial payment system. In the medium to long term, the FSC will consider allowing qualified fintech payment service providers direct access to the payment system without relying on banks’ services. To be eligible for such direct access, fintech payment service providers will have to meet certain requirements in financial soundness and digital capabilities.