Over the past 75 years, South Korea’s economy has boomed, undergoing rapid industrialisation with a growth rate of seven per cent annually, according to the International Monetary Fund. Having earned its spot as one of the Four Asian Tigers, we explore what is propelling South Korea’s economy and fintech ecosystem.
Following the Korean War, in which Korea was split in two, South Korea has since become one of the richest nations in the world. A variety of factors have occurred to enable it to achieve this prestigious position, with one major pillar being its export-orientated economic development strategy.
Initially, the country’s major export items were mainly raw materials or light industrial products that were manufactured at small factories. However, by the 1970s, South Korea started investing in heavy chemical facilities and began exporting heavy industrial products.
South Korea continued to evolve with the changing times and customer demands, developing large companies, known as chaebols, to bolster its economy. Some of its most famous ones include Samsung, Hyundai, LG and Hanjin Group.
In the 21st century, the country has established a foothold in various markets including the mobile phone, automobile, semiconductor and steelmaking markets. It has also begun exporting cultural products – notably music, movies, dramas and gaming.
Seoul is the capital and largest city of South Korea IMAGE SOURCE GETTY
From a fintech standpoint
South Korea has a highly developed and profitable financial services sector, reflected in its standing in the Asian banking and insurance markets (in both, the country is ranked third largest).
The government has played its part in accelerating the country’s fintech ecosystem too. Since 2014, the government has been encouraging banks to innovate with technology and by 2018, seven local banks had their own fintech innovation labs:
Shinhan Financial Group
KB Financial Group
Woori Bank
KEB Hana Bank
Industrial Bank of Korea
NH NongHyup Bank
Hanwha Life Insurance
2015 was also a notable year for fintech in South Korea as the Financial Services Commission of Korea (FSC) established its IT-Finance Integration Support Plan. This plan would support the growth of the Korean fintech industry and ensure consumers were properly protected.
More attention was also given to startup support programmes in 2017, as the government created the Ministry of Small and Medium Enterprises (SMEs) and Startups. A year later, the Seoul Fintech Lab and the Fintech Center Korea were also created to catalyse the development of fintech in the country. Six years later, these organisations are achieving what they set out to, with the Bank of Korea also playing a notable role in the country’s financial evolution.
Support through funding
Between 2020 and 2023, the FSC raised a total of KRW513.3billion (around $377million) and supplied KRW282.4billion (around $207million) in investment to 85 fintech startups. In April 2024, the FSC announced its plans for a second batch of fintech innovation funds. This would take place between 2024 and 2027, and would see KRW500billion (around $368million) raised in this time.
While South Korea has one of the highest digital adoption rates in the world (internet penetration rates stood at over 97 per cent in 2023, and 94.8 per cent of Koreans owned a smartphone), it continues to focus on up-and-coming technologies like open banking. For example, in 2019, the country introduced new fintech investment guidelines, an open banking system, and a Special Act on Support for Financial Innovation. This introduced a financial regulatory sandbox programme.
A booming ecosystem
Today, it is estimated that there are over 800 fintech startups in the country. Examples of Korean fintechs include digital-only bank KBank, mobile banking services Kakao Bank, HyundaiCard, and crowdfunding platform Wadiz.
There isn’t a single subsector of fintech that makes up the majority of startups in South Korea. In fact, the biggest subsector only makes up 42 of startups: fintech enablers. This is followed by payment and settlement firms at 17 per cent, market provisioning and asset trading firms (13.5 per cent) taking third place and asset management in fourth place at 9.1 per cent.
Financial innovation is not slowing down in South Korea. For instance, 83.2 per cent of bank services involving withdrawals and deposits of bank accounts took place online during the first quarter of 2024. According to the Economic Statistics System of the Bank of Korea, there was an increase each quarter from Q1’23 which was at 79.8 per cent. This is a massive jump from Q1’20 when the figure was at 16.5 per cent.
As more services are accessed online, the need to go to physical branches is on the decline. In fact, in 2020, only 4.1 per cent of services were accessed in person, with only 11 per cent of customers using ATM services in Q1’24.
The post Fintech’s Role in Accelerating South Korea’s Booming Economy appeared first on The Fintech Times.
