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Fin-tech in South Korea is set for some positive changes.

The country’s top financial regulator is “considering reviewing interpretations of the financial holding company, banking and financial industry laws in an effort to boost the fin-tech sector,” according to flurry of media reports earlier this month.

Fin-tech in the country is currently hampered by laws that restrict non-banking companies with more than $2 trillion won (US$1.8 billion) in assets from owning or investing in financial subsidiaries, with non-financial businesses only able to hold a maximum 4 per cent stake in financial companies or banks.

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Meanwhile, financial institutions can only buy stakes in or make contributions to companies in the same business sector. The result being that institutions have been virtually banned from investing in fin-tech startups due to “ambiguous regulatory phrasing,” according to a report by Yonhap News Agency.

South Korea doesn’t want to be left behind
Globally, fin-tech startups are being hailed as a positive disruptive force to the financial and banking sector, with some industry data pegging US$12 billion worth of investments having flown into such ventures in 2014 alone. South Korea certainly won’t want to be left behind.

In a recent letter to shareholders, Jamie Dimon, Chairman of JPMorgan Chase, warned that “there are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking.”

Meanwhile, Mohit Mehrotra, an executive director at Deloitte Consulting, was quoted in an interview with livemint today as saying that “governments across [Asia] are trying to seize this trend, as we saw recently in Korea where the regulator is set to allow banks to fund fin-tech firms and has also decided to allow non-financial companies to establish Internet-based banks.”

Joe Seunghyun Cho, a Managing Partner at global venture capital firm Yozma Group, told e27 that “with the strong will of the the Financial Services Commission (FSC) to support the fin-tech industry and overall boom in the startups and fin-tech companies, Korea is becoming an interesting place as a potential startup hub.”

The Yozma Group’s venture capital fund has grown to US$4 billion since it’s establishment in 1993.

The regulator also said state-run policy lenders such as the Korea Development Bank and the Industrial Bank of Korea will set aside a combined $200 billion won (US$184.9 million) in funds this year to support fin-tech companies, Yonhap further reported.

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Cho believes the developments represent a positive step, even though the suggested changes have not yet been cleared in the national assembly. “However, while some innovative startups can be seen in the tech sector, it is difficult to find innovative fin-tech startups,” he said.

With moves forward come potential pitfalls
Breaking down the new proposals in South Korea, Cho includes the following potential positives: Overall changes will benefit the market and allow new players to enter with lower barriers of entry; Improves competition and widens the choices for consumers; and Korean-oriented companies and technology to meet the needs of the domestic market.

However, not all is plain sailing, as he points out: Korea’s fin-tech industry lags behind other countries (even within Asia), and it’s uncertain whether the changes will occur quickly enough — i.e. abolishing the pre-screening review process took six months for Bank Wallet Kakao and KakaoPay (the FSC decided to abolish it in January, but expected it to happen in June or later).

“Korea had problems with regulations and laws which were initially designed to protect consumers but are now outdated and trap the development of fin-tech,” Cho said. He added that any new laws need to be flexible to meet the yet-expected trends and technology.

“We need to change the regulation paradigm in Korea to foster fin-tech and the convergence of different sectors. Overseas VCs are interested in the Korean market, but you would need to act timely in order to use the tide,” he said.

The example of China comes to mind, a country whose fin-tech industry is growing quickly due to an under-developed banking system. Cho recommends that Korean regulators study China as an example going forward. “China may not only be the world’s largest factory, it has potential to become the world’s payment gateway,” he concluded.

Ultimately, it could be an exciting time for fin-tech startups in South Korea. If the government is serious about reviewing and updating the old laws, and it would prove to the world and wider region that it’s finally getting it’s act together in the booming sector.

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Image credit: cozyta / Shutterstock