Fee for using open financial payment network (open banking) has been set up for small FinTech startup companies.
Basic cost that is 90% lower than current firm banking fee will be applied to major FinTech businesses such as Kakao Pay and Viva Republica. For small startups, open banking fee will be between $0.018 and $0.026 (20 KRW and 30 KRW).
‘Special fee’ system for small FinTech companies that was exclusively reported by The Electronic Times was determined during an open banking meeting. (Reference: 1st page of The Electronic Times issued on 4/11/19)
Financial Services Commission (FSC) and Korea Institute of Finance held a seminar with a topic ‘Future Tasks for Successful Adoption of Open Banking’ on the 15th and released results from a bank committee and an arbitration proposal for open banking fee.
In February, financial authorities announced its plan to convert firm banking fee system into open API (Application Programming Interface) system. They called up chairmen of financial holding companies and agreed to open financial payment network to FinTech businesses and legalized open banking.
Afterwards, they formed a committee to discuss details about innovating financial payment infrastructures and finally came up with proper amount of open banking fees and detailed operational plans after going through nine meetings.
To reduce financial burden of using APIs for startup FinTech companies, financial authorities have decided to apply costs of processing APIs by separating them into basic cost and reduced cost.
Between $0.035 and $0.044 (40 KRW and 50 KRW) will be applied to major FinTech businesses while small companies will have to pay somewhere between $0.018 and $0.026. Korea Financial Telecommunications and Clearings Institute’s board of directors will finalize actual costs shortly.
Basic cost and reduced cost will be applied based on monthly cost of using APIs and number of times APIs are used in a month. Reduced cost will be first applied for the first month of using APIs. Businesses that use APIs more than monthly reduced standard for three months in a row will be applied with basic cost starting from the fourth month of using APIs.
K Bank and Kakao Bank will also participate resulting in total of 18 banks that are participating in open banking system. In the future, it is likely that savings banks and mutual financial businesses will also participate in open banking system.
Korea Financial Telecommunications and Clearings Institute (KFTC), which is an agency that manages open banking, has decided to extend computer network system shortly depending on amount of use of open banking. South Korean Government is also going to look into an additional agency that will manage open banking and establish a 24-hour real-time response system for any network breakdown.
Payment businesses with high security systems will have their own authentication methods acknowledged as much as possible while other businesses will be applied with KFTC’s authentication method and transaction limit.
Financial authorities have also prepared solutions to surety insurance issue, which has caused controversies.
In case of KFTC’s open APIs, it is obligated to apply surety up to 300% of daily exchange volume to prevent any security incidents. According to The Bank of Korea, amount of simple wire transfer in one day is $86.5 million (98.2 billion KRW) on average. In this case, about $264 million (300 billion KRW) of surety needs to be prepared by FinTech businesses.
However, financial authorities are going to apply same amount of surety based on current firm banking system on small and medium businesses. For major businesses, guaranteed amount will be applied through self-regulated agreement after withdrawal banks consider many risks.
“We are going to finish establishing and testing open banking mediation system by end of October and start open banking service for every FinTech business starting from December.” said Department Head Choi Seok-min of KFTC’s Future Finance Department. “Internet-only banks will also participate as providers sometime during September after going through computer network tests.”
“Even if we make nice cars, they are practically useless without infrastructures like highways.” said Chairman Choi Jong-gu of FSC. “I hope that there will be abundance of innovative services within markets as we establish open banking system.”
Staff Reporter Gil, Jaeshik | osolgil@etnews.com