Korea Trial by Fire for Growing Fintech Sector

South Korea’s financial technology (fintech) sector is growing quite rapidly, seeing a fourfold increase in the past 9 years. This is happening despite the country being a hotbed of cybersecurity threats and cyberattacks based on several factors unique to it. This crucible can potentially create a group of resilient fintech companies uniquely resilient to cyberattack, but only if these companies continue to keep security a critical priority as they grow.

According to Statista, venture investments into Korean startups have grown steadily as of 2023, reaching 5.39 trillion won (US$4.04 billion) that year alone. The country is also pretty high in the World Bank’s global ease of doing business rankings, coming in fifth. South Korea’s digital penetration also helps, as about 93% of the country are regular internet users and 67% of those have adopted digital financial services in their day-to-day lives. This means that the average value of mobile payment transactions in South Korea per day added up to 875.5 billion won, an increase from last year.

This fertile fintech ground has helped 592 fintech businesses grow in South Korea as of 2022. Out of those, fintech enablers accounted for 42% of the market. Also, the payment and settlement sector had a share of 17%, market provisioning and asset trading 13.5%, and asset management 9.1%, according to Statista.

While this growth of the fintech sector in South Korea is partially organic, it is also being fostered by the government itself. Just less than a year ago, Seoul Mayor Oh Se-hoon said at his opening speech for Seoul Fintech Week 2023 that the capital city itself would invest 5 trillion won to foster fintech startups in order to transform the city into a global fintech powerhouse.

South Korea’s fintech sector is unique, however, because this growth is happening in what could be considered hostile conditions. South Korea is in a unique top-four list of countries that are most targeted for cyberattacks, with the other three being Taiwan, Israel, and Ukraine. This is according to Microsoft’s Digital Defense Report 2023, which used company data to track cybersecurity threats between July 2022 and June 2023.

More recently and more specifically, a State of the Internet report released by Akamai revealed that financial institutions all through the Asia Pacific region are under increased attack by phishing strategies compared to other regions of the world. The term phishing refers to sending fraudulent emails or other messages pretending to be from a company or organization that it is not – lying digitally. The report, titled “Navigating the Rising Tide: Attack Trends in Financial Services,” reveals that phishing attacks using counterfeit domains are accounting for 68% of all recorded instances targeting financial services.

Reuben Koh, director of security strategy for Asia Pacific & Japan at Akamai, commented on Korea’s unique position by saying, “South Korea is a leading nation of technology advancements in digital finance. The physical location of the country, from a geopolitical perspective, is also unique. It is in a very intense geopolitical position, and that itself gives rise to more advanced and sophisticated attackers that are going after the nation’s digital economy.

He went on to say, “What that means is that while other financial players are preparing for peacetime, just to make sure that they have the relevant controls and defenses in place, South Korean financial organizations need to ensure that they are thoroughly prepared for a surge of cyberattacks as they are now being actively targeted by highly sophisticated and motivated threat actors.”

The South Korean government itself takes this threat seriously, which is why they have released revisions to the country’s National Cybersecurity Strategy in February of this year. Notable changes to the policy include a change from a defensive posture to an offensive posture, implementing increased infrastructure resilience, utilizing emerging technologies, engaging in industry-government coordination, and global collaboration.

The offensive posture of the country starts with openly naming North Korea as the biggest threat to the country’s cybersecurity and offensively responding to any attacks from that country and any others. The country’s commitment to infrastructure resilience focuses on strengthening information system security and implementing a “Zero Trust” security strategy. The government openly calls for creating a competitive advantage by reviewing and developing a suite of emerging technologies proactively, and doing so in a coordinated effort between public and private institutions not just in Korea but globally.

These policy changes go a long way to continuing to protect the country’s technology sector, including fintech. However, it can’t be said to ever be enough. Reuben Koh summarized what lies in store in the future of the country’s cybersecurity outlook by saying, “South Korea itself, as a nation, as a country, needs to be always diligent to protect that very vibrant digital economy that it has.”