Competition with Local Firms Likely to Heat up
As global cloud service providers including Amazon Web Services (AWS) and Microsoft (MS) are eyeing the Korean financial market, competition between local and foreign providers is expected to intensify in the cloud market.
Korean cloud service providers, including KT, Naver Business Platform (NBP) and NHN, have an advantage in that they have the “tap equipment” that meets the Common Criteria for Information Technology Security Evaluation (CC) of the National Intelligence Service (NIS). Meanwhile, foreign providers have the advantage of having various service experiences in oversea markets.
Foreign cloud service providers, which have showed little interest in the Korean financial market due to security issues, are now entering it. MS has undergone the security evaluation of the Financial Security Institute in partnership with Carrot Insurance, and AWS, which has partnered with KB Kookmin Bank and Shinhan Bank, is undergoing an evaluation.
Local cloud service providers have already gone through the security evaluation. KT has partnered with KEB Hana Bank, NBP with Industrial Bank of Korea (IBK), Korea Exchange (KRX) and Hanwha Life Insurance, and NHN with KB Kookmin Bank.
Foreign cloud service providers have had difficulty entering the Korean financial market due to the regulations of the Korean financial authorities. If a local financial services company is to use cloud service, it needs to satisfy 141 basic and additional security requirements. A cloud service provider, if it wants to provide its service to a domestic financial company, needs to meet all these requirements and then install the “tap equipment” which complies with the CC of the NIS at its data center.
As it is impossible for foreign cloud service providers to install the equipment which meets the CC of the NIS, local providers alone are placed under financial security control of the Korean government. This explains why local cloud services are more stable than foreign ones in terms of security.
“Due to backdoor and other security problems in Korea, only the equipment which has passed national verification should be used,” said a local cloud industry insider, adding “Foreign service providers can never satisfy such requirements.”
Carrot Insurance, which has adopted MS cloud service, is a startup and thus is expected to exert only a slight influence on the market. However, major financial services companies such as KB Kookmin Bank and Shinhan Bank, which use AWS services, are different. Financial companies that use foreign cloud services are taking risks.
“As financial companies’ use of foreign cloud services involves risk-taking, major financial companies’ selection of foreign cloud services could become a social issue,” said another official from a local cloud company.
As seen in the case of KB Kookmin Bank, using both foreign and local cloud services can be an alternative. “As more and more financial services companies are expected to use both local and foreign cloud services, the clout market will become a lot more competitive,” said an industry observer.