FinTechs belonging to this category provide identification services, which are required for most banking services.
Attitude of the country towards identification services
As various services that require contactless identification, such as digital finance, are newly implemented and developed, the demand for contactless identification is also increasing. As such, companies that provide contactless services such as Big Tech and banks are attempting to enter the identification verification services market in order to reduce fees and improve user convenience. As mentioned in Section ii. below, identification services are regulated by the Information and Communication Network Act. However, there has been objections claiming that it is difficult for new businesses to enter the market due to heavy regulation, and in response, Korea Communications Commission has recently lowered the bar for businesses to enter the market by easing the regulation.
Obligations and requirements to provide identification services
The Information and Communication Network Act defines identification services as the development, provision, and management of alternative means, and provides that the performance of such identification services requires the appointment by the Korea Communications Commission. 'Alternative means' shall mean the method of identifying a person without using the resident registration number.
Korea Communications Commission determines whether the applicant business entity is capable of safely and reliably performing identification services by focusing on 87 evaluation criteria such as physical, technical and management plans, technical capacity, financial capacity, the adequacy of the size of the facility, etc. In particular, with respect to financial capacity, a capital of KRW 8 billion or more is required.
Additional comments regarding the legal situation for identification services or what FinTech’s must be aware of in this business area
With respect to identification verification agencies, new businesses have relative difficulty entering the market as there are numerous evaluation criteria and the Korea Communications Commission is known to strictly examine whether each criterion is met. For example, Naver and Kakao, which are Korea's two major big tech companies, applied to be appointed as identification verification agencies last year, but both companies were disqualified because they could not verify that the account holder and the person whose name is on such account were identical.
However, as described in Section i. above, in February, Korea Communications Commission eased entry regulations to facilitate new businesses to enter the identification verification service market. To be more specific, there were originally 92 evaluation criteria, but the number of criteria was reduced to 87. Further, while applicants were originally required to receive ‘suitable’ on all of the evaluation criteria, a partial score evaluation system was implemented so that a business can be appointed as an identification verification agency as long as it receives 'suitable' on some of the major evaluation criteria and two quantitative evaluation criteria and receives 800 out of 1,000 points for 64 other evaluation criteria. In addition, businesses that met other requirements but received less than 800 points can be now subject to conditional appointment.
Market size for identification services and biggest companies in this business area
The size of the identification verification services market is approximately KRW 100 billion, and the 'PASS' service operated by three major mobile carriers (SKT, KT, LG U+) has a market share of up to 98 per cent, and the number of its subscribers recently surpassed 35 million. On the other hand, Viva Republica, which operates Toss, has recently been appointed as an identification verification agency and is being identified as a robust successor.
Additional comments regarding the economic situation for identification services or what FinTech’s must be aware of in this business area
Although a total of 19 businesses have been appointed as identification verification agencies by March 2022, considering that the three mobile carriers have a market share of up to 98 per cent, even if businesses pass the strict evaluation process and are appointed as identification verification agencies, it is likely that such businesses will face substantial difficulty settling in the market by competing with the three mobile carriers.