There are thousands of FinTech startups all around the world that are pursuing innovation in regards to the financial field. However, in Korea FinTech hasn’t seen much innovation until last year. Same can be said for transportation. Innovation in the transportation sector made by UBER and Lyft in the United States and “Didi Taxi” in China is years ahead of Korea’s “Kakao Taxi”.
In the smartphone market, new Chinese smartphone startups such as “Xiaomi” and “OnePlus” appeared, causing no gaps in the Korean market during the upsurge in China and the world market. However,‘Pantech’ has collapsed and LG Electronic’s smartphones are struggling.
Why is this happening? Why are innovative startups in fields like Fin-Tech, drones, transportation, and smartphones are not coming out of Korea? Is it just that the market is too small?
– Some point to negative US regulations compared to positive Korea regulations.
For example, on US roads, it is possible to make a turn at any intersection. Drivers are not allowed to make certain turns if and only if there are signs indicating to do so. It is a system that can give drivers a lot of freedom if it is not market with a certain regulation. That is why in the US there are many companies that are not too tied to regulations and are challenge in new fields.
This kind of business is not legal in Korea. LoopPay, which Samsung Electronics bought for about 250 billion won, reads credit card information and puts it into a smartphone. They started on kickstarter and was later bought by Samsung. They did not need permission of existing credit card companies. In Korea, it is illegal to store card information on a smartphone.
In the United States, a startup can start without caring about regulations. If the company grows bigger, regulators will start to notice for the protection of consumers. For example, the “Lending Club”, which links individual investors and lenders, started their business in 2007. They started without regulation but later got suspended by the Securities and Exchange Commission (SEC). However, six months later, they reached an agreement with the regulators which created the opportunity for P2P loans to be recognized in the system. Ever since then, P2P loans have been blossoming in the United States.
Now let’s look at Korea. On Korean roads, U-turns are not allowed. Only if there is a sign indicating a U-Turn is it allowed. Regulatory systems are similar. There is a guideline that defines what is permitted and if there is nothing that is not there, it is unconditionally illegal. Even if it seems to be regulated unlike US startups like Uber, who is starting to think about consumers and relieve their discomfort, Korea’s startups are carefully examined before they proceed. This is because Korea is a pre-regulatory system, not a post-regulatory system.
This system makes it so that Korean startup entrepreneurs have no choice but to know the legal process. These meticulous regulation limits the imagination of founders. This will lead to frustration and many entrepreneurs could end up giving up.
The US regulatory system is considering grazing. This is a way of releasing a flock of sheep on a large ranch and putting a fence over it. Anything in the fence is a place where anything goes. Therefore, there are lots of opportunities for innovation.
In Korea, conservative regulatory systems and cultures must change in order for innovative startups in various fields to emerge. The next president of Korea as well as the ministers need to take the initiative directly in order to see innovative trends in startup products and services.