Domestic banks’ payment networks will be opened to outside non-bank financial companies to facilitate the creation of innovative financial products such as the simple money transfer app “Toss.” The fee for using the inter-bank payment networks will also be lowered by 90 percent.
The Financial Services Commission (FSC) announced these reform measures on Feb. 25 after a meeting with chairmen of major financial holding companies and bank presidents at the Government Complex Seoul.
The core of the plans is to allow domestic banks and fintech companies to freely access the payment networks set up by other banks. Until now, only banks have been allowed to exclusively use the financial payment networks. In 2016, the government allowed small fintech firms to access the networks, facilitating the emergence of such innovative fintech companies as Toss. However, the service fee was too high -- 400 won to 500 won (US$0.36 to 0.45) per transaction. This discouraged fintech companies from using the networks. Toss had to negotiate with each bank over several years to secure the right to use the payment networks.
However, all fintech companies will soon be allowed to freely use the financial payment networks. This will facilitate the growth of new fintech firms. For instance, some companies could suggest customized financial products after analyzing customers’ account information.
The reform initiative will also enhance the convenience of bank customers. Currently, customers who want to use mobile banking services are required to download the apps of all the banks where they have accounts. But they will be able to freely deposit and withdraw money from their accounts if they have downloaded only one of the apps.
The service fee will be lowered by nearly 90 percent. This will lessen the burden of fintech companies, but lower the profit of banks.
The FSC is planning to establish an open banking system by the end of this year in order to lower the service fee. It will also revise the Electronic Financial Transaction Act to open the inter-bank payment networks.
The FSC also came up with various plans to ease regulations on simple payment platforms, such as Kakao Pay.
First, it will allow a small-sum credit function. Until now, simple payment operators are not permitted to provide deferred payment services so their customers have had to deposit money in their accounts in advance or connect with other accounts. But they will be allowed to make a purchase and use public transportation with a deferred payment within the limit of 500,000 won (US$447) in the future.
The FSC has also decided to raise the deposit limit from the current 2 million won (US$1,788) to 5 million won (US$4,470). This is to enable simple payment operators to sell expensive products such as home appliances and tour package products.
In addition, it will extend various benefits granted to credit cards to simple payment operators. It is planning to revise the related laws to allow simple payment operators to handle foreign exchange payment transactions and allow credit card member stores to provide bigger discounts to customers who use simple payment platforms.
An FSC official said, “The current credit card payment system incurs costs, including numerous fees. We aim to raise the proportion of the simple payment market to 20 percent of the total payment market in Korea.”