The South Korean government is moving to lessen the burden on FinTech companies who use bitcoin for foreign currency transfers by lowering their minimum capital requirements.
According to a report from Korean news outlet PulseNews, local FinTech companies who offer bitcoin-mediated foreign currency transfer services will see easier regulations come July this year. There are about 20 FinTech companies who use bitcoin for foreign currency transfer services to Korean citizens.
The South Korean government is set to lower the minimum equity capital criteria for FinTech companies in the foreign remittance space, according to the revised Foreign Exchange Transactions Act. The publication cites a financial industry source who pointed to the call made by the Ministry of Strategy and Finance, the government body that oversees the financial policies of the South Korean government.
Against the previous minimum of more than ₩2 billion ($1.76 million), Korean FinTech firms will see that figure cut in half. Effective July 18, they will be required to hold ₩1 billion (approx. $882,000) in equity capital to offer foreign exchange currency transfer services using bitcoin in Korea.
The Foreign Exchange Transactions Act was originally revised in February this year as the South Korean government allowed FinTech agencies, beyond banks, to offer foreign currency transfers if registered as such. However, the ₩2 billion minimum capital requirement was a figure too steep for FinTech companies. None of the 20 bitcoin-based remittance companies, met that criteria.
Foreign Currency Transfers using Bitcoin
A typical bitcoin-mediated foreign currency transfer is initiated when a sender deposits money in a fiat currency. The fiat currency is paid to a local bitcoin exchange, which sees the money’s equivalent in bitcoin transferred to a bitcoin company in the recipient’s destination. Here, the company uses a bitcoin exchange service to cycle the bitcoin back to fiat, before the recipient receives the money in the local currency.
Traditional bank remittance through SWIFT routinely takes about 3-4 days between payment and settlement of the transaction and incurs up to 6% of the remittance in fees. PayPal and other wire transfer agencies have made transfers faster and somewhat cheaper over the past decade. However, a bitcoin-based remittance agencies offer same-day foreign transfers with a significantly cheaper fee, about 1% or below.
Even banks have taken notice, taking advantage of bitcoin’s benefits. In November, South Korea’s Shinhan Bank announced a remittance service, backed by bitcoin, to benefit money transfers in the Korea-China corridor. One of South Korea’s largest financial institutions with over $250 billion in assets, Shinhan Bank is using an intermediary Hong Kong bitcoin exchange to facilitate the remittance service.
Commercial banks in Korea pay out as much as ₩500 billion (approx. $450 million) in remittance fees each year.
Featured image from Shutterstock.