Policy Issues - Open Banking

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  • Open banking has emerged as a major phenomenon across the globe, promoting data openness and innovation in payment services. Major economies including the European Union and the United Kingdom have required banks to open up their account information to fintech firms, while strengthening personal data protection. In Asia, Singapore, Hong Kong and Japan have launched open banking schemes

    Embracing the global trend,    to open up financial payments networks and promote innovation in the financial sector. In the same year, open banking was pilot-launched on October 30 and became fully operational on December 18, with 50 institutions (17 banks and 33 fintech firms) participating currently. In the near future, more fintech firms are expected to join after completion of security tests.

  • Key Features of Open Banking in Korea

    [ STRUCTURE ]
  • Korea’s open banking system operates on a joint platform which does not require participating banks and fintechs to form individual partnerships. The Korea Financial Telecommunications & Clearings Institute (KFTC) acts as an operator which connects participating members – banks or fintechs – to the banking networks through the joint platform. Once logged on the platform, it will automatically provide participating banks and fintechs access to the networks without individual partnerships.
  • [ PARTICIPANTS ]
  • All 18 banks (with Kakao Bank expected to join in H1 2020) are participating in open banking, not just as providers of account information but as active users of the system. The open banking system is open to big fintech firms as well as smaller ones to promote a wider usage and facilitate further advancement of the payment sector.
  • [ SERVICES ]
  • Open banking offers six APIs for enabling core banking services as follows:
    API type Services
    Read APIs(account information services) 1. account balance: enabling a customer to check balance at his/her own bank accounts
    2. transaction history: enabling a customer to check transaction history with his/her accounts
    3. account holder’s real name: enabling open banking service providers to access a customer’s account information to verify the validity of the account and identify the account holder’s real name
    4. remitter’s information: enabling a customer to check the remitter’s name and account number
    Write APIs (wire transfer services) 5. debit transfer: enabling open banking service providers to collect money from a customer’s account
    6. credit transfer: enabling a customer to withdraw money from his/her bank account and credit it into another open banking service provider’s account
    Compared to open banking services in other countries, Korea’s open banking takes a step further by providing not just read APIs but also write APIs, enabling wire transfer functions.
  • [ LOWER FEES ]
  • The open banking system lowers fees for fintech firms to use the banks’ payment network to 1/10 of the previous level (1/20 for smaller fintech firms).
  • [ APPLICATION & SCREENING ]
  • Applicants are allowed to participate in open banking after screening and security checks.
    1. Registration Applicant submits application to the Korea Financial Telecommunications & Clearings Institute (KFTC).
    2. Screening for applicability & approval KFTC determines applicability and grants approval after checking requirements, such as eligibility, adequacy of business model, legal requirements, etc.
    3. Service development & test Applicant develops fintech services and tests for viability.
    KFTC conducts final assessment on services.
    4. Security check & vulnerability inspection Financial Security Institute conducts inspection of security system on overall operating environment and application vulnerability.
    5. Sign agreement KFTC and applicant sign a service agreement after final review on submitted documents, fee determination, etc.
    6. Access open banking
  • [ SYSTEM RELIABILITY AND SECURITY ]
  • In order to ensure the reliability of the system and information security, the government has upgraded the operating system from 4TB to 60TB and set up a 24-hour Fraud Detective System (FDS), through which the KFTC will closely monitor fraudulent activities and automatically shut down suspicious transactions.
    Also, the Financial Security Institute will thoroughly examine whether open banking service providers have set up an effective security management system within their firms.
  • [ CONSUMER PROTECTION ]
  • To minimize damages inflicted to consumers in the case of financial accidents, the daily total withdrawal amount from all banks is limited to KRW10 million. Open banking service providers are also required to have financial guarantee insurance in order to promptly compensate for damages in the case of financial accidents.
  • Expected Outcomes

  • To minimize damages inflicted to consumers in the case of financial accidents, the daily total withdrawal amount from all banks is limited to KRW10 million. Open banking service providers are also required to have financial guarantee insurance in order to promptly compensate for damages in the case of financial accidents.
  • [ FINANCE AS A WHOLE ]
  • Open banking will encourage competitive cooperation in the financial sector, tearing down barriers among banks, or between banks and fintechs, which will reshape the financial services landscape and bring more dynamics in the financial ecosystem.
  • [ BANKS ]
  • The transition to ‘banking as a platform’ will be accelerated with virtually every person being their potential customer. Under such a platform model, banks will directly compete with fintech firms to acquire or maintain customers through multiple channels, while providing innovative solutions in partnership with fintechs.
  • [ FINTECHS ]
  • Open banking will lower barriers for fintech firms as it lowers cost burdens and allows easier access to payment networks.
  • [ CONSUMERS ]
  • Consumers will be able to access a wide range of financial services from payment to money transfer to loans to spending pattern analysis to product comparisons using a single platform.
  • Beyond ‘Open Banking’ & Toward ‘Open Finance’

  • The government will further develop open banking into open finance with scalability and flexibility
  • 1. Expanding the scope and functions of open banking services

  • The government will extend the scope of financial institutions participating in open banking to include non-banks – e.g. savings banks, mutual finance business and post offices. The functions of APIs, currently limited to balance inquiry and transfer transactions, will also be widened to provide more diverse services, enabling a more comprehensive asset management via open banking. The government will lay the groundwork to create synergies with MyData and electronic finance businesses.
  • 2. Ensuring safety and security in open banking

  • The government will ensure stable and secure operation of open banking system with thorough security checks and safety measures such as daily withdrawal limits and insurance coverage requirement for damages from financial accidents.
  • 3. Establishing legal ground for open banking

  • The government will ensure stable and secure operation of open banking system with thorough security checks and safety measures such as daily withdrawal limits and insurance coverage requirement for damages from financial accidents.
  • Open Banking: Frequently Asked Questions

  • The FSC has prepared     to help visitors better understand about the open banking system in Korea.
  • Last updated: Apr. 6, 2020