What’s behind the growth of fintech in South Korea?

Bring up South Korea, and the first thing that comes to mind is its cultural exports. K-pop sensations like Grammy-winning group BTS and K-dramas such as the Netflix hit Squid Game series are a global phenomenon.

There’s also its consumer electronics brands. Samsung and LG, for example, are household names in many markets. But South Korea’s tech scene goes much deeper than that: For one, the country’s fintech sector is booming. Kakao Pay, the fintech arm of messaging app Kakao, is valued at about US$10 billion, while Seoul-based startup Toss raised almost US$400 million in June as part of its plans to grow its sales by 12x. The company is eyeing an initial public offering in 2025.

It turns out that this growth in the fintech space could be traced back to the consumer tech industry.

Chayee Song, manager of Seoul Fintech Lab / Photo credit: Seoul Fintech Lab

As consumers increasingly used smartphones, their behavior changed and became “centered on mobile,” says Song Chayee, manager of Seoul Fintech Lab, an institution that hosts incubation and acceleration programs for fintech startups. “This has opened the door to the development of customized financial services for consumers.”

Success factors

One of the major reasons for this growth has been the support of the South Korean government. After recognizing the sector as an important engine for job creation and economic development, the Financial Services Commission introduced an initiative called the Financial Regulatory Sandbox in April 2019. This allows fintech-related startups to test new services with more freedom.

“If a startup’s apps or services are designated as an innovative financial service through this initiative, it can be temporarily exempted from needing to adhere to regulations, allowing it to quickly test and commercialize its ideas,” Song says.

She adds that the government expects banks to play a more innovative and productive role beyond their existing duties, and they’ve stepped up to the plate. For Tanker, a firm that offers real estate finance solutions, its relationship with the Industrial Bank of Korea (IBK) began with the bank’s 1st Lab, a sandbox program specifically designed to facilitate hands-on application of new technologies. In Tanker’s case, it was an AI-driven automated loan review system.

Tanker CEO Lim Hyunseo / Photo credit: Tanker

“IBK’s main interest was in process automation for various banking solutions,” observes Tanker CEO Lim Hyunseo. “Under IBK’s sandbox program, we were able to prove the market viability of Blitz, our flagship B2B solution that reviews and evaluates real estate properties with greater accuracy and speed.”

The partnership also laid the foundation for Doczip, Tanker’s consumer software service that automates tedious real estate paperwork processes to create personalized and accurate real estate documents with real-time data verification.

Essentially, working with IBK allowed Tanker to flesh out and commercialize its solutions, which is similar to what Metsakuur, a facial recognition AI software startup, experienced with its partnership with Hana Bank.

MetsaKuur chief financial officer Lee Seoho / Photo credit: MetsaKuur

“Hana Bank recently launched its updated mobile banking app, and its authentication service is enabled by our facial recognition technology,” explains Lee Seoho, chief financial officer of Metsakuur. “This technology has proven to be a key factor in the success of the app’s bio-authentication methods, and this success has helped position us as a leader in the field. We’ve now also extended our services to IBK and Shinhan Bank.”

Hana Bank also invested in Metsakuur’s pre-series A round. Taken as a whole, the collaboration has served as a catalyst for business expansion, and the startup is now gradually expanding its clientele to government ministries and public institutions as well as the construction and education fields.

Accelerating growth

Song points out that banks also benefit from these partnerships by giving them access to new customers with growth potential. Accelerator and incubator programs such as Seoul Fintech Lab play an important connector role, too.

“In creating collaborative links with existing financial companies – including overseas ones – we provide the networks for startups to expand into,” Song says. This network effect is strengthened further by how the accelerator offers its startups office space in Yeoui-do, a core financial hub in Seoul.

“It’s an area with many potential clients, and we’ve also had the opportunity to share experiences with other tenants and receive patent and legal advice,” says Lee.

Seoul Fintech Lab also provides a variety of mentoring programs that cover various aspects of startup management, including marketing, business launch support, and employee training. Lim mentions that for Tanker’s staff onboarding, it relies on the organization instead of implementing the process itself.

Apart from its networking offerings, Seoul Fintech Lab hosts demo days and investor relations events. These activities provide startups with the opportunities to look for funding – always a “major concern” for founders, as Lee puts it.

What’s next?

As with most industries, the Covid-19 pandemic has sped up the growth of the South Korean fintech ecosystem. Song thinks that the change will continue to accelerate, and sectors such as digital banking, digital loans, stock-trading platforms, and payments will rapidly develop.

Security is a related industry that will also have to keep up with the fintech vertical’s growth, and big data will continue to play an important role in this respect.

For its part, Seoul Fintech Lab aims to keep supporting fintech startups by serving as “a communication channel between financial authorities and companies,” says Song.

“It is important to deliver policies and systems to the market so they can take root. Conversely, market opinions must also be reflected in the policies,” she concludes.

Funded by the Seoul Metropolitan Government, Seoul Fintech Lab provides customized support for the various needs of fintech startups and offers office space for up to three years.

Find out more about partnering opportunities on its website.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.