Up to 40 fintech startups — about half of which use bitcoin as their primary settlement mechanism — will likely receive official money transfer licenses from South Korea’s Financial Supervisory Service this August.
Lowered Capital Requirements to Encourage More Competition
This development comes just months after the authority decided to lower the capital requirements for these startups in a revision to its 1998 Foreign Exchange Transactions Act — from 2 billion KRW ($1.75M USD) to just 1 billion KRW ($875,000).
Additionally, licensed businesses need to maintain a total debt-to-equity ratio of 200 percent or less. With most startups in South Korea being in the seed stages of investment, it was unlikely that any would have been able to comply under previous monetary requirements.
Michael Ko, CEO of the one of the largest Korean remittance startups Bluepan, explained that his company helped the government write the new legislation. “They want to boost startups,” Ko said. Bluepan, founded by Sanghyun Lee, was one of the first bitcoin remittance startups on the scene in early 2015, and successfully pioneered a business model that was copied by several other Korean startups soon thereafter.
The model was noteworthy enough that even Shinhan Bank began piloting a similar Bitcoin-powered remittance strategy for the South Korea-to-China corridor in 2016.
Lowered Limits Focus More On Personal Transactions
Along with lowered capital requirements, the legislation contains tighter restrictions for transferable amounts, ensuring that businesses that take advantage of this new license focus their sights purely on small personal transactions. The new guidelines indicate a maximum transaction size of $3,000, and an annual transfer per customer of no more than $20,000 in aggregate.
The average transaction size from South Korea to emerging markets like the Philippines or Vietnam is less than $1,000 per customer each month, so the restrictions are within a comfortable range. Still, Ko is confident there will be further revisions in the future to “loosen up” these limits.
South Korea’s legislation came into effect this month, with updated licenses expected to be issued within the next 30 days. Earlier in the year, the Philippines’ Central Bank released a similarly Bitcoin-friendly law in an effort to catch up with the wave of remittance innovation in the region. However, no fintech startups have been granted the new licenses as of yet.
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