Regulations killing fintech startups in Korea
Greit shuts down services on regulatory hurdles
A growing number of fintech startups are being forced to shut down their operations due to a bureaucratic adherence to regulations and a backlash from conventional players, according to industry officials and experts, Thursday.
In particular, regulations controlling new entries have prevented Korea’s fintech startups from growing into bigger players, and have emerged as major stumbling blocks for the country to create a new ecosystem where nascent companies are allowed to provide new, innovative services or products.
This situation indicates that while the financial authorities have vowed to ease regulations to foster the fintech industry, they still have a long way to go with their regulatory reform.
Facing huge barriers, fintech startups here have begun shutting their businesses or leaving Korea to seek opportunities abroad where they are allowed to thrive.
The latest example of a fintech startup that decided to close its business is Greit, which operated the online currency exchange service Weys from May 2018, after obtaining a license from the Ministry of Economy and Finance a month earlier.
Weys surpassed 30 billion won ($25.8 million) in accumulated trading volume with over 100,000 users within a year of its start of operations as the company, which did not need branch offices, charged commissions up to 50 percent lower than conventional commercial banks for exchanging money.
Its users were able to receive 10 foreign currencies including the U.S. dollar, the Japanese yen, the New Taiwan dollar and the Singapore dollar wherever they wanted, such as homes, airports and offices, if they made reservations for delivery via the Weys app.
The company, however, faced a backlash from the Incheon International Airport Corp. (IIAC) and banks there, whenever it delivered foreign currencies to its customers. The IIAC claimed Greit should sign a lease contract, if it wanted to operate in the airport.
“Those who want to do businesses in national facilities should participate in public tenders for fair treatments among players,” the IIAC said in an official letter sent to Greit in May, urging the fintech firm to pay the high rents that other commercial banks did.
In addition, Greit has had difficulty in offering its services to foreigners.
According to the finance ministry, in order offer remittance services to foreigners who sent foreign currency via the Weys app to other countries in exchange for the Korean won, the firm needed a license which required 1 billion won in capital, two experts in foreign exchange and a foreign exchange computer network.
Against this backdrop, Greit decided to shutter its business Nov. 8.
“Although the government promised us that it would ease regulations by the end of this year, we could not wait until then, considering the intensifying competition and growing uncertainties,” a Greit official said.
Another fintech startup facing regulatory hurdles is MOIN, which has sought to offer blockchain-based remittance services since its establishment in 2016, in order to enable lower-costs and faster overseas remittances.
The fintech firm asked the government to allow it to operate in a regulatory sandbox in January, but the administration’s decision has been delayed for the past nine months because the service uses the Stellar cryptocurrency. Current laws ban remittances using cryptocurrencies, so MOIN had to offer its service without using blockchain from February.
MOIN and other providers of blockchain-based remittance services are considering leaving Korea as they have continued to fail to get approval from the government.
Unlike Korea, other countries have been regarded as a goldmine for Korean fintech startups.
In 2017, Balance Hero, for example, became the first Korean company to obtain a license for electronic payment services in India. The company’s True Balance app allows those without credit cards to get unsecured loans or make payments in installments, by paying a commission to third parties who hold credit cards.
This business strategy would be impossible in Korea, due to various regulations including the Banking Act and the Specialized Credit Financial Business Act.
To prevent fintech startups from leaving Korea, experts have called on the government to give permission to startups first and then regulate them if problems occur.
“The reason I envy China is that the country tends to give permission first and then take measures if there is a problem,” Chang Byung-gyu, chairman of the Presidential Committee on the Fourth Industrial Revolution, said during a policy advice announcement given to the government, Oct. 25.
He also said the administration’s support for the financial industry and startup ecosystem has not been effective enough.
“The Financial Services Commission has emphasized financial innovation, but blockchain-based remittance abroad and a third internet-only bank have yet to be made available here,” Chang said.