Innovating Korea’s financial payment infrastructure with open banking

The open banking platform is a joint open infrastructure in the banking sector which provides core banking services in standardized open API to ensure fintech companies and banks offer fintech services without partnership with individual banks.
Inquiry and transfer can be processes for accounts of all 18 banks by simply accessing the standardised open API. Fees were reduced by 1/10. Open banking is expected to spur innovation with the emergence of comprehensive financial platforms and improved customer experience.

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Designed to serve individual banks, Korea's financial payment system provided limited access, requiring a separate contract with each bank in order to gain full access to the system. Moreover, with high fees imposed on fintech businesses, fintechs struggled to release and run innovative services.
Based on the "essential facility doctrine", which requires the owner to allow competitors to access and use the essential facility to enhance competition among essential facility owners while maximising consumer benefits, the Financial Services Commission (FSC) sought ways to ensure fair access and use of payment network where a natural monopoly exists.

In partnership with relevant agencies, such as the Korea Financial Telecommunications and Clearings Institute (KFTC) and the Financial Security Institute (FSI), FSC unveiled a policy on innovating financial payment infrastructure on Feb 25th, 2019 to create reasonable and fair competition ground which can offer new, innovative and comprehensive financial services. An open banking platform was established as a part of the effort.

Open banking is a joint open infrastructure in the banking sector, which runs core financial services in standardized open API to seamlessly offer fintech services to customers at reasonable cost, without obligating banks and fintech companies to enter into partnerships. Core financial services such as inquiry and transfer are provided in 6 APIs.

The 6 APIs include:
ⅰ) Balance inquiry (check balance of customer’s own account);
ⅱ) Transaction history inquiry (check deposit/withdrawal history of customer’s own account);
ⅲ) Account real name inquiry(user organization* verifies validity of customer account and name of account holder);
ⅳ) Check sender’s information inquiry (verify name of sender who has deposited to an account held by the user organization and sender’s account number);
ⅴ) Debit transfer (to take funds out of user’s account and credit it into user organization’s account); and
ⅵ) Credit transfer (to take funds out of the user organization’s payment account and credits it into user’s account).

The objective of the open banking platform is opening up the entire financial payment infrastructure to create a reasonable and fair competition ground where all players can offer new, innovative and comprehensive financial services for paradigm shift and innovation across Korea’s financial industry.

Through the open banking platform, a financial company with weak customer base or fintech business can maintain potential customers by utilising data held by another financial institution and thus a new opportunity can always be discovered if innovative application is created based on accurate analysis of customer needs.

Korea’s fin-tech industry is expected to grow rapidly with many new players entering the financial market to launch innovative services and existing banks seeking to discover new business models to secure sources of future profits. Dramatic transformation in day-to-day finance is expected to take place, too, because the financial industry is likely to be restructured to be consumer-oriented by enabling consumers to independently choose their financial services and have control over their data.

When bank-centred open banking stabilises, discussions will be launched to expand the system into the secondary banking sector, such as mutual aid, savings banks, post offices, etc. within next year. Review will be conducted to expand services by increasing the number of user organisations, adding more APIs and so on.

The amendments to the Electronic Financial Transactions Act will include legal ground of open banking payment, while new services by an initiation service provider (PISP), such as My Payment, will be introduced.

In addition, open banking will be expanded, for instance by combination, or reorganization with My Data sector to promote customised, new and innovative services. In short, “open banking” will be implemented to pave the way for true financial innovation to turn itself into “open finance”.

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Year: 2019
Level of government: National/Federal government


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