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FinTechs belonging to this category offer alternative payment services which are supposed to provide a faster and cheaper way for national, European, and international payments for private and business customers by using new technologies.
For example, payment service providers hereby offer solutions to easily integrate several payment services in online shops.
Some FinTechs furthermore provide real cash register systems and online-reservation solutions for restaurants and shops providing their own payment services or making use of the payment services of FinTechs described above.
Introduction
Attitude of the country towards modern payment services
As mail-order sales and e-commerce have become increasingly widespread with the development of information and communication technology, the digital payment services market (electronic prepayment means, payment gateways, etc.) is also growing continuously. The growth of this market has been accelerating even more since the outbreak of the COVID-19 pandemic. Furthermore, in order to encourage innovative businesses in the industry, as mentioned in ii. and iii. below, Korean financial regulators are promoting institutional reforms, such as through the revision of the Electronic Financial Transactions Act (“EFTA”).
Legal affairs
Obligations and requirements to provide payment services or ancillary services described above
In Korea, the EFTA regulates digital payment services under the umbrella term of “electronic financial services.” The following services are categorized as electronic financial services under the EFTA: issuance and management of electronic money, electronic fund transfer, issuance and management of electronic debit payment means; the issuance and management of electronic prepayment means, payment gateways (“PG”), escrow services, electronic bill payment and presentment (“EBPP”). Those engaged in the business of providing the above electronic financial services must be licensed by the financial regulators (for the issuance and management of electronic money) or registered (in the case of all other electronic financial services).
To register as electronic financial service providers in order to provide electronic prepayment means and PG services, which are especially relevant to FinTech, one must qualify as a company or other qualified entity under the Commercial Act of Korea and meet the minimum capital requirements (KRW 2 billion, or approximately USD 1,637,968, for electronic prepayment means service providers; KRW 1 billion, or approximately USD 818,886, for PGs), personnel requirements, IT equipment requirements, financial soundness requirements, as well as certain requirements applicable to major investors in the relevant financial service provider.
Additional comments regarding the legal situation for payment services or what FinTech’s must be aware of in this business area
The financial regulators have been pushing for a regulatory overhaul of the EFTA since last year, and the proposed amendment bill has been submitted to the National Assembly. However, due to conflicts of interest between traditional finance and FinTech, the passage of the proposed amendment has been delayed. The amendment bill proposes to consolidate the 7 existing electronic financial service licenses and registrations by function into the following 3 license types instead: (i) fund transfer (remittance); (ii) payment service (settlement); and (iii) PG.
The proposed amendment also introduces 2 new licenses: (i) the new “MyPayment” business license, which would allow licensees to direct payments to financial institutions on behalf of its customers, all without holding customer funds and through a si