Fintech in South Korea has witnessed remarkable growth over the past decade, driven by a digitally-savvy population, government support and a dynamic startup ecosystem. A 2024 report by Julie Choi, partner director at Tenity, a Swiss startup incubator, delves into the state of South Korea’s fintech industry and the key factors behind its expansion.

The report first looks at the history of fintech in South Korea, emphasizing the progress initiated by the Financial Services Commission (FSC) since 2014. That year marked a turning point for the sector, as the authority intensified its efforts to drive fintech innovation by taking measures to simplify e-commerce payment processes in July and proposing revisions to foster fintech development.

In 2018, more strides were made with the establishment of the Fintech Center Korea and the Seoul Fintech Lab. The Fintech Center Korea focuses on fostering an innovative financial ecosystem and enabling fintech services, while the Seoul Fintech Lab, funded by the Seoul Metropolitan Government, provides incubation and acceleration programs to promising fintech ventures.

By that same year, seven domestic banks had established their own fintech innovation labs and approximately 400 fintech companies were active in the market, according to the UK’s Department for International Trade (DIT), showcasing the sector’s rapid growth during these formative years.

Since then, the South Korean government has ramped up its efforts to reform the regulatory landscape to boost fintech innovation. Notable regulatory advancements include:

• The Regulatory Sandbox Program, launched in April 2019 and which allows fintech companies to test innovative services without immediate regulatory compliance. Over 200 projects have been launched after benefiting from exemptions through this program;
• The Digital Finance Transformation Plan, announced on July 24, 2020 and which seeks to modernize the financial sector by streamlining electronic financial business regulations and supporting digital infrastructure improvements; and
• The revised Act on Reporting and Using Specified Financial Transaction Information, effective March 25, 2021, which regulates virtual asset service providers (VASPs) with requirements like real-name verification and anti-money laundering (AML) compliance, introducing stricter standards for cryptocurrency-related businesses and legitimating the booming sector.

Drivers of fintech growth in South Korea

According to the report, several unique factors have fueled the expansion of fintech in South Korea. First, the country boast one of the most digitally connected populations in the world, with 97.8% of the population owning a smartphone, the highest rate of any country in the world, and 93% using the Internet daily.

This widespread digital literacy has accelerated fintech adoption, the report says, a trend that’s exemplified by the rapid rise of the nation’s leading fintech players.

KakaoBank, launched in 2017, has over 23 million users, representing a penetration rate exceeding 40% of the country’s 50+ million population, according to the Korea Times. The bank offers a range of services, including loans and payments, and benefits from integration with KakaoTalk, the country’s leading messaging app that boasts a penetration rate of 87%.

Viva Republica is another leading homegrown fintech company in South Korea. Viva Republica is the creator and owner of Toss, a popular financial app that offers peer-to-peer (P2P) money transfers, bill payments, investment management, and more. Toss has amassed a user base of 28 million total members and 19 million monthly active users, as of June 2024. Viva Republica, valued at KRW 10-20 trillion (US$7.2 billion-US$14.5 billion), is now reportedly preparing for a US market debut.

The report also underscores South Korea’s vibrant startup ecosystem as a key driver of fintech growth. Over the past years, this ecosystem has flourished, providing fintech companies with easier access to talent and support.

Seoul, in particular, has emerged as South Korea’s tech hotspot and a prominent startup hub globally. This year, the city was ranked the world’s 9th biggest and most advanced startup hub in the Global Startup Ecosystem Ranking, surpassing Shanghai, Berlin, and Toronto. The position marks a significant improvement from ranking 20th in 2020.

According to Startup Genome, the value of this ecosystem amounted to US$237 billion between H2 2021 and 2023.

New initiatives by the local government are poised to further bolster Seoul’s startup ecosystem. These include the opening of the Seoul Startup Hub Scale-up Center in 2023, the first hub in the region to focus on investment exchange for private investors, accelerators, and startups, as well as the establishment of the Seoul Unicorn Startup Hub, which aims to produce 60 global unicorns by 2030.

The South Korean fintech landscape

Since Kakao launched the country’s first mobile payment service in 2014, the fintech industry in South Korea has expanded and diversified significantly.

By mid-2024, South Korea was home to nearly 600 fintech companies, according to Statista. Besides Kakao Bank and Toss, other prominent fintech brands from South Korea include Naver Pay, a digital payment service operated by search engine giant Naver and which commands a 33.5% share of the mobile payment market; Dunamu, the owner of Upbit, South Korea’s largest cryptocurrency exchange which handles over 80% of the country’s crypto trading volumes and about 10% of global volumes; and Carrot, a digital insurance provider backed by Hanwha, SK Telecom and Hyundai Motor Group, among others, and which has written over 2 million auto insurance policies.

Featured image credit: edited from freepik