South Korea will introduce the so-called open banking system that will enable bank customers to manage and control multiple bank accounts in one place including a non-traditional financial app within this year to foster innovation in the local financial industry.
The Financial Services Commission (FSC) announced on Monday that as part of its efforts to innovate the country’s financial infrastructure, it will build an open banking system, in which lenders let their customers share their transaction data with third parties, including financial technology (fintech) firms. With the introduction of open banking, it will be possible for small fintech startups to provide with their own payment and transfer services, which is expensive and inconvenient now.
Currently, only traditional lenders can access the country’s payment network for money transfer services, and the network allows lenders to have access to their own bank accounts’ data only. This means that fintech companies must forge a partnership with each bank to provide payment services through their own services and have to pay partner banks commissions of up to 500 won per service.
In response to criticism that the current system limits competition among financial institutions and hinders the development of innovative financial service platforms, the Korean government has decided to facilitate the open banking system, in which traditional lenders are required to share their customers’ data with third parties including fintech companies through application programming interfaces or APIs.
With the open banking system, consumers will be able to manage and control their multiple bank accounts in one place and make easy and fast money transfers. Fintech firms registered as payment service providers would be required to pay banks commission fees that may be about 90 percent lower than the current rates for accessing their customers’ transaction data because they won’t need to enter into a partnership with each bank under the open banking system. Commission fees would be much lower for small-size startups, the FSC said.
To facilitate open banking, the FSC said it will introduce rules to prevent discrimination against non-traditional fintech companies based on the speed and cost of money transfers.
The FSC will come up with details on establishing an open banking system by next month through working-level meetings with local lenders and implement the system this year. It also plans to amend the country’s electronic financial transaction act by September to create legal foundations for payment order service.
By Lee Seung-yoon and Lee Eun-joo
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]