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Although much discussion on open banking has tended to focus on the pioneering development in the UK and EU, the latest data from South Korea shows that the country is well ahead of its European counterparts in terms of payments market adoption.
On the second anniversary since its launch, Korea’s Financial Services Commission (FSC) announced that there are 100m registered accounts using open banking in the country, across 30m users. This is equivalent to roughly two thirds of the adult population, or as noted by the FSC, 105 percent of all domestic economically active population.
Over this two-year period from December 2019 to December 2021, users made a total of 8.4bn open banking transactions.
According to the FSC, open banking users most frequently used the balance inquiry (68 percent) service, followed by the wire transfer (21 percent) and transaction inquiry (6 percent) services.
Addressing this strong performance, an FSC press release noted that with open banking, “consumers have been able to enjoy various types of financial services much more conveniently, while financial companies and fintech firms have been able to develop and launch more innovative services through platforms”.
Pioneering open banking
All across the world policymakers are enacting regulations to encourage competition in banking and provide a framework to support innovations in digital financial services. A significant weapon in this policy aim is the enactment of open banking regulations.
Despite considerable investment, take up of open banking services has been uneven across different parts of the world.
One country leading the way in terms of consumer adoption is South Korea. Following successful trials in 2019, South Korean regulators announced in December of that year that the industry would move to a full-scale launch of open banking services.
Initially supported by 16 banks and 31 fintechs, the service now incorporates 120 providers, including financial investment firms, card companies and small and medium-sized fintechs.
According to the FSC, the daily average volume currently tracks at around 20m transactions, worth a total amount of some KRW1trn ($840,000).
By contrast, the UK’s Open Banking Implementation Entity (OBIE) in November 2021 announced the number of successful open banking payment transactions had reached 3.1m for the month, equivalent to a daily average of around 100,000.
In other areas, UK open banking has been more successful. Successful API calls for account information services reached 717m during the same period.
The UK is often regarded by many industry experts as being at the forefront of open banking development and a step ahead of its neighbours in the EU. Although partly true, the latest statistics from South Korea give a little perspective to this claim.
Korea has one of the most developed payments markets globally. According to the latest data from the Bank for International Settlements (BIS), Koreans made on average 621 non-cash transactions per year in 2020, well ahead of many other leading payments markets, such as Sweden (533), the United States (519), and the UK (461).
Given this strong non-cash payments development and prominence of non-bank payment companies in the country, such as Naver Pay, Samsung Pay, KakaoPay, it is perhaps unsurprising that the country’s open banking market has had such a strong success early on, particularly in relation to payments initiation services.
Since its launch, the service has gradually expanded the types of customers and services available, but a key focus has been to ensure relevant data and security protections, helping to ensure confidence in the service.
In July 2021, the FSC introduced mandatory data disclosure between participating businesses in accordance with the principle of reciprocity, while it also introduced additional security measures, including reinforcing existing pre-security checks of fintech companies and adding new post-security management.
More recently in December 2021, new enhanced security monitoring service was introduced to help improve its detection and processing of abnormal transactions.
A focus on data
Building on its early success of open banking in Korea, in December the FSC launched a pilot of an API-based MyData service.
The government-led programme, which launched fully on January 5, 2022, aims to help consumers manage and access their personal financial data on a single platform in a more convenient and safe way, while guaranteeing the right to data privacy through MyData services.
In July, the FSC introduced new revised guidelines along with the current go-live date. According to the FSC, in its efforts to introduce the service, this has led it to expand the scope of the types of data made available for MyData services: simplify personal authentication and identity verification processes; introduce stronger consumer safeguards; and create an environment to promote fair competition between service providers.
According to a press release, “the API-based financial MyData service will be piloted from 17 financial institutions and fintechs at first with some 20 other service providers including big techs and fintechs joining by the end of this year and 16 other MyData service providers including insurance companies and a credit bureau expected to join in the first half of 2022”.
The FSC also plans to expand open banking through the introduction of an open finance initiative, allowing “consumers can enjoy more comprehensive and personalized financial platform services tailored to their individual needs”.
