The devaluation of the Chinese yuan and Japanese yen may spell trouble for South Korean exporters, but another growth industry may provide a new frontier for growth. Financial technology, or fintech, is an emerging industry with serious growth potential.
Definitions vary, but fintech is best understood as the use of emerging information communication technologies to improve existing financial services or create entirely new ones. Fintech products and services include everything form mobile payment systems to alternative lending platforms. Fintech is, in other words, the latest phase in the ongoing ICT revolution. Major financial and banking hubs like London, New York, Toronto, and Hong Kong are centers of this new digital disruption. Seoul, it appears, may have some upside potential.
Earlier this summer, South Korea’s financial regulars revealed a new set of measures permitting non-financial firms to hold up to a 50 percent stake in internet-only banks. The Financial Services Commission (FSC) is seeking to ease regulations that impede growth of fintech firms and technologies.
Regulatory adjustments such as these would enable the rise of internet-only banking and related financial technologies. The response to the regulatory adjustment was shift. According to Yonhap, Korean Investment Holdings Corp. and Daum Kakao Corp. “have agreed to form a consortium for the launch of an Internet-only bank.” This new regulatory environment would, it is noted, encourage big tech companies, like Kakao, to further develop new banking platforms such as Bank Wallet Kakao, a digital wallet.
The FSC stated in May of this year that it intended to create a better regulatory environment for fintech development, thus mitigating the uncertainty preventing investment in fintech companies. Permitting non-financial firms a greater stake in the financial industry will open up opportunities for investment in financial technology and, in theory, economic growth and job creation.
While some may instinctively flinch at news of financial deregulation, creating a better regulatory and institutional environment for fintech development is good for countries with supportive or burgeoning ecosystems. It opens up opportunities for high-skilled job creation, particularly in the fields of software engineering, “big data” analytics, and other “creative economy” vocations. It also supports the development of a stronger services sector, an area where South Korea has remained underdeveloped.
The ICT-driven creative economy is seen as the next growth frontier in South Korea, and with its highly developed infrastructure for smartphone and technology use, highly educated workforce, and cluster of financial institutions ready to invest, the conditions seem right. The major barrier has been regulatory. As Marcus Noland notes in a 2014 Foreign Affairs essay on South Korea’s economic development, “If the government were willing to lower barriers to entry, the ongoing development of the country’s financial sector could help restructure the service sector by making more capital available to underwrite innovation and boost investment.” It appears regulatory change is afoot.