Reg­u­la­tions killing fin­tech star­tups in Korea

Greit shuts down ser­vices on reg­u­la­tory hur­dles

The Korea Times - - FRONT PAGE - By Park Jae-hyuk [email protected]­re­

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.

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