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[MTN News] Column | The birth of open banking that changed the paradigm of the financial industry

[Source] MTN News 13-06-2023 07:00:01

column | The birth of open banking that changed the paradigm of the financial industry

In the mid-2010s, the digital transformation revolution began belatedly in the financial sector as well. Fintech led the change, and open banking, block chain, and artificial intelligence that appeared later have advanced financial services and established themselves as catalysts that will change the existing financial industry. Money Today Broadcasting sheds light on the footsteps and future of the financial industry, which is speeding up its evolution, through a series of columns by Kim Bong-kyu, director of the Digital R&D Center at NH Nonghyup Bank. While working at Nonghyup Bank, Director Kim Bong-kyu planned Open API, the predecessor of open banking, for the first time in Korea, and grafted various Fourth Industrial Revolution technologies such as blockchain and big data into financial services. Currently, blockchain technology company zkrypto is seeking the possibility of a future financial solution to respond to the Web 3.0 era.

If we talk about the biggest change in the financial industry in the 2000s, I can say without hesitation that it was the 'introduction of open banking' in December 2019. This is probably because the changes before and after the introduction of open banking are important points that can change the paradigm of the financial industry. In fact, there were preparations for open banking before it was born.

Kim Bong-kyu, Director of zkrypto

Research Center (Executive Director)

In March 2015, Nonghyup Bank announced the establishment of an open API-based open platform for the first time in Korea. In December of that year, Nonghyup Bank launched an open API, and in August 2016, the Financial Services Commission opened the 'bank joint fintech open platform'. . The reason can be summarized in two ways. The first was concerns about the disclosure of financial company information to the outside world through API, that is, data openness. The second was concerns about cannibalization that could be caused by market friction with existing services such as firm banking.

However, these concerns could not become a barrier to the great innovation of open banking, which was a new demand for market change in the financial industry. Since then, commercial banks, led by the Financial Services Commission, have participated in a new change in finance called open banking based on the 'bank joint fintech open platform', and eventually open banking was launched in December 2019. It can be said that open banking has a greater meaning in its use as a national infrastructure network such as highways than in the meaning of service. In a word, through open banking, it became possible to check all bank accounts and transfer money with one application.

Obviously, the birth of open banking is an event that shakes up the financial industry, and as a result, the ecosystem of the financial industry is being reorganized. The first is a personal credit information management business called my data. In February 2020, the year after Open Banking was launched, the Credit Information Act, the Personal Information Protection Act, and the Information and Communications Network Act, which are referred to as the “3 Data Acts,” were revised and implemented in August, and My Data was fully implemented in January 2022. The My Data business is a business that integrates personal credit information scattered in various places and provides it to individuals on the premise of exercising the right to request transmission of personal credit information (Credit Information Act Article 2 Subparagraph 9-2). This also works based on the API.

My data providers are the emergence of a new type of player, but more diverse players are expected to emerge in the future in the financial industry ecosystem. Before open banking, there were many structures in which electronic financial companies such as VAN (Value Added Network) and PG (Payment Gateway) companies linked systems with the financial sector to necessary companies and collected fees for them.

At this time, the value delivered by VAN is a transaction-based business model, but the 'value' of my data providers is likely to be a data-based business model. Therefore, how well a company accumulates, analyzes, and utilizes data becomes its competitive edge. In other words, based on the infrastructure of open banking, the My Data business that data can soon become 'value' was born, and this can be said to be an event that provided an important turning point to data finance in the history of the financial industry.

Because of these changes, financial companies have to constantly compete not only with existing players but also with new players such as my data providers in order to survive. In particular, fintech is causing confusion throughout the banking industry value chain. Companies such as Alibaba, Tencent, and Kakao started out as platform business-based tech companies, but eventually entered the regulatory-based banking industry, showing various types of business spectrum.

Tech companies will think about how to provide finance on their platforms, and financial companies are thinking about how to provide financial services to various platforms. In short, financial companies are constantly trying to advance into tech companies and tech companies into financial companies. So, the boundary between the two camps is collapsing, which is called the 'Big Blur phenomenon'. This phenomenon may trigger the emergence of a new financial revolution that breaks down industrial barriers at the boundary between the two camps, such as financial and non-financial, and financial and tech companies.

Recently, similarly, the term 'hybrid' is used a lot, which means integration that increases added value by combining different functions or technologies. As such, it is now expected that different fields, technologies, and services will be more converged for each other's competitiveness beyond the boundaries of finance and non-financial in the new industrial ecosystem.

A typical example of a bank's attempt to advance into a tech company is Woori Bank's Wibitok messenger platform project in 2016. The author also supported the experiment of Wibitok at the time, but it is regrettable that it remains as a case of failing to overcome its limitations. However, recently, it has been known that some banks are trying to enter new business fields again. Shinhan Bank's delivery platform 'Danger,' KB Kookmin Bank's affordable phone service, 'Live M', and Woori Bank's 'My Courier Service' are examples. Considering concerns such as the time required for the revision of the law and the expansion of risks in financial companies, I am shouting 'fighting', albeit in a small voice.

Currently, the six major commercial banks in Korea, including NH Nonghyup Bank, Woori Bank, KB Kookmin Bank, Shinhan Bank, Hana Bank, and IBK Industrial Bank, are operating start-up support fostering programs that have technology but require collaboration and investment. BNK Financial Holdings, DGB Financial Holdings, and JB Financial Holdings are also participating in discovering and nurturing startups. Several commercial banks started launching their own fintech support centers in the first half of 2015, and now, based on their experience, they are supporting direct investment in startups, investment linkages, and even global expansion. In the early days, the discovery was focused on fintech companies, but recently it is expanding to various fields such as ESG. In addition, the bank itself is taking charge of the accelerating business, which was mainly consigned to specialized companies, to enhance its professionalism, and the scale of support is gradually expanding to the level of financial holding companies.

It is not an exaggeration to say that the borders of the regulated industry are facing threats of infiltration from the outside and destructive innovation from the inside, and now finance is heading into an era of confusion in a fog where there is no guarantee of 10 years from now.

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