1. Introduction

2. Literature Review

3. Materials and Methods

3.3. Data Collection

First, data on the users of the Korean open banking API platform were collected from the KFTC, which operates the platform. The Korean open banking API platform was fully implemented in December 2019 and has since grown rapidly, with 34 million net subscribers (160 million cumulative subscribers) as of December 2022, which is approximately 118% of the domestic economically active population (29 million). In addition, the number of net registered accounts has reached 160 million (350 million cumulative registered accounts) and the average daily number of API transactions has reached 30 million. When the number of subscribers and registered accounts is classified by the platform user’s business area, fintech companies account for 61% of the cumulative number of subscribers and 48% of the cumulative number of registered accounts (Figure 6).

When classifying the total number of uses by transaction type, balance inquiries accounted for the largest proportion (71.3 %), followed by debit transfers (16.5 %). However, when classified by industry, debit transfers accounted for only 5.4% for financial companies but 47.2% for fintech companies, comprising a larger percentage than balance inquiries (Figure 7).

It is giving approvals to the applicants for using the platform after the test at the test bed. According to data from the KFTC, as of December 2022, 288 businesses out of 355 applicants have been approved for use as a TPP, and 131 of them have launched actual services using APIs after completing functional tests and security inspections as well as executing agreements. The TPPs comprise 53 financial companies (19 banks, 8 credit cards, and others), 54 big tech companies (including Kakao Pay and Toss), and 21 small- and medium-sized fintech companies (Figure 8).

In the second to fourth stages of this research, 30 fintech companies using the open banking API platform for mobile application services were identified (for a list of mobile applications and providers, see the Appendix). We focused on mobile application services currently using the open banking API platform. This is because mobile applications are directly used for customer service. Finally, each mobile device application business model was analyzed and classified into typical business model types. The list includes mobile applications provided by the most representative Korean big tech companies, such as Naver, Kakao, and Toss. Other popular applications already have a customer base in the market, such as PAYCO, Finnq, and Banksalad. The remaining had previously provided services in their own areas. However, all have created new types of business models using the infrastructure of the Open Banking API platform.

Figure 9. Companies analyzed in the present study.

Figure 9. Companies analyzed in the present study.

4. Results

4.1. Business Model Analysis Results

In this study, we analyzed 30 mobile applications that provide fintech services to customers in Korea using the open banking API platform. Fintech companies provide services by combining multiple APIs, rather than one, to create new businesses. We analyzed how APIs can be combined to provide services. New business models were classified into four types: simple fund transfers, simple payments, cross-border remittances, and asset management. We analyzed four cases to determine how fintech companies use open APIs for each new business model.

4.1.1. Simple Fund Transfers

A simple fund transfer is a service that simplifies the complex security and authentication procedures required in the previous fund transfer process, making it faster and more convenient for consumers. The sender can make a fund transfer transaction using the phone number, email address, or messenger ID of the beneficiary without knowing the account number. Even before the introduction of the open banking API platform, a service called simple remittance was provided by a few fintech companies; however, this service was difficult to activate. For fintech companies to provide simple remittance services, they were required to sign a contract with each bank and use the services provided by banks at a high fee. Thus, services could not be provided to accounts at banks that did not have a contract with the fintech company. With the introduction of the open banking API platform, fintech companies can now provide fund transfer services to accounts at all banks without signing separate contracts with each bank. Among the 30 mobile applications we analyzed, these services are provided by seven of them and are usually based on big tech platforms, such as Toss, PAYCO, NaverPay, Kakaopay, SSGPAY, CheckPay, and Finnq.

For this service, fintech companies combine the following three APIs:

Balance inquiry: before the transfer, a balance inquiry is made, and the customer’s account balance is displayed.

Debit transfer: When the customer enters the amount that he or she intends to send, the money transfer service provider debits the customer’s bank account to top up the pre-payment funds.

Credit transfer: The money transfer service provider completes the transfer by providing a refund of topped-up pre-payment funds to the beneficiary’s account.

Figure 10. Combination of APIs for a simple funds transfer.

Figure 10. Combination of APIs for a simple funds transfer.

4.1.2. Simple Payment

Simple payment is a service that simplifies the payment process by using a mobile phone as a payment device, thereby making payments quick and convenient. Fintech companies that provide simple payment services store payment information registered by customers on a server, and then use commercial transaction payments to provide payment services by omitting separate authentication procedures. Customers who want to use this service register their bank accounts as simple payment accounts. Each time a payment is made, it is automatically withdrawn from the registered payment account.

Similar services were provided before the introduction of the open banking API platform, but because most of them used credit cards, fintech companies needed separate contracts and system connections with many credit card companies. Merchants who used this service also needed to pay high credit card transaction fees. With the introduction of the open banking API platform, fintech companies can now register and use all bank accounts as customer payment accounts without connecting each bank individually. In addition, it has become possible for customers to add a bank-account-based prepaid recharge account to use in a company's mobile wallet, allowing them to charge their mobile wallet's prepaid account from their bank account and use it for payments. Among the 30 mobile applications we analyzed, these services are provided by 13 of them and are typically based on mobile payment service providers, such as UBpay, Toss, Yammi, Tmoney Pay, Moneytree, DGU Upay TONG, L. POINT with L.PAY, PAYCO, NaverPay, SSGPAY, CheckPay, Kakaopay, and Finnq.

When a fintech customer makes a payment at either an online or offline store, the fintech company combines the following two APIs to provide a simple payment service:

1)

Debit transfer: When a customer requests payment for a purchase, the payment service provider debits the amount from the customer’s account.

2)

Credit transfer: On a designated settlement day (normally after one to three business days), the payment service provider pays (settles) the amount after payment fees to the merchant’s account.

Figure 11. Combination of APIs for simple payment.

Figure 11. Combination of APIs for simple payment.

4.1.3. Cross-border Remittance

Cross-border remittance services have traditionally been recognized as difficult to innovate because of their high cost and slow processing speed, as these services have been provided mainly by the banking sector that provides foreign exchange services. However, as the size of cross-border remittances has increased, the demand for improving the efficiency and convenience of these services has also grown, and fintech companies have been working to introduce new services that are more convenient, cheaper, and faster. Fintech companies' innovation in this area has largely been achieved in two directions. First, fintech companies have been striving to develop services that enable cross-border remittances through a simple authentication process using various non-face-to-face channels to improve customer convenience. Second, fintech companies have also tried to provide services at a lower cost by simplifying the fund transfer process between the remittance service providers of both countries and lowering the cost of transferring funds. As a result, the remittance process through traditional foreign exchange banks has been simplified.

Korea’s open-banking API platform has enabled fintech companies to provide faster and more convenient cross-border remittance services at low fees. For example, if a migrant worker wants to transfer money to their home country, the fintech company first withdraws money from the customer's account in Korea, deposits it in the company’s account, and then sends the message to its partner in the foreign country. Finally, the partner delivers the money to the recipient. They use a pairing method that produces the same effect as traditional cross-border remittances by offsetting and netting the money between both parties. This provides cheaper and faster services by creating new mechanisms, without using the existing foreign exchange banking system. Throughout this process, fintech companies use multiple APIs. Among the 30 mobile applications analyzed, this service is provided by 12 of them, usually based on cross-border remittance service providers such as Debunk, CROSS, JRFKorea, InterRemit Money Transfer, TravelPay, Hanpass, GME Remit, E9PAY, QSRemit, GmoneyTrans, ReLe Transfer, and SENTBE.

For this service, five types of APIs are used: account holder identification, account balance inquiry, debit transfer, credit transfer, and transaction information inquiry.

1)

When a customer registers an account in the domestic bank for remittance, the fintech checks whether the customer is the real holder of the account through the account holder identification API.

2)

When the customer asks to send funds to another country, the fintech checks whether the customer has sufficient money through the account balance inquiry API.

3)

The fintech then withdraws the requested amount of money from the customer’s account using the debit transfer API.

4)

Next, the fintech deposits the money into its account through the credit transfer API.

5)

Finally, the fintech sends a message to its partner in the other country requesting that the specified amount of money be transferred to the recipient.

Figure 12. Process of cross-border remittance using open APIs.

Figure 12. Process of cross-border remittance using open APIs.

4.1.4. Asset Management

Fintech companies provide various asset management services, such as automatic investment services. This service utilizes algorithms or artificial intelligence to make investment decisions automatically. Investors input information such as their investment goals and risk preferences, and based on market analysis and data, the service constructs and optimizes the investor’s portfolio. These services typically have low fees and offer the advantage of utilizing the expertise of investment professionals, while reducing investment amounts. This model can also be used to provide asset-allocation and rebalancing services, which appropriately diversify investment portfolios to minimize risks and maximize returns. Fintech companies construct portfolios tailored to each customer's investment profile and automatically rebalance them whenever assets deviate from target allocations, thus maintaining optimal portfolios. Several fintech companies also provide investment education and advisory services to enhance customers' understanding of investments, boosting their confidence in investment decisions, and assisting them in achieving their financial goals. In addition, fintech companies can offer asset management services that can help minimize customers' tax burdens by adjusting their portfolios. By utilizing strategies such as tax-loss harvesting, tax-efficient fund placement, and tax deferment, these services aim to minimize tax expenses and maximize investment returns. Finally, fintech companies offer services that enable customers to automatically save towards their goals. This allows customers to start with small amounts and gradually increase their assets over time.

Even before financial institutions provided APIs, fintech companies offered customers some inquiry services, such as integrated account information inquiries and "screen scraping." Screen scraping is a technology that automatically collects and stores necessary data from data shown on an Internet website. Websites are written in a programming language called HTML, and screen scraping collects and analyzes HTML code to extract customer data. In countries where data cannot be collected through APIs owing to a lack of financial open API infrastructure, screen scraping technology is still used as an alternative. However, this method can open customer information up to vulnerabilities, as solution providers directly store and use customer authentication information (e.g., ID, password, certificate). The solution provider collects the displayed information by scraping after performing authentication with information on behalf of the customer. The solution company directly stores and uses the customer authentication information to relieve the inconvenience of the customer repeatedly entering authentication information. In addition, reliably obtaining data is challenging if a website's user interface or program changes because, unlike APIs, information is collected using only the customer's authentication information without a formal contract with a financial company. Owing to these shortcomings, financial services are often prohibited from using screen scraping. Thus, APIs can be considered more suitable than screen scraping for financial services that prioritize safety and standardization.

The first step for asset management services based on open APIs is to gather and show customers’ individual financial information, such as their bank account balance. Korea’s open banking API platform enables fintech companies to gather and show each customer’s individual financial information with their permission. Through a single application based on information inquiry APIs, customers can manage their dispersed bank account information from all the banks with which they trade and obtain customized recommendations from fintech companies that provide asset management services. Among the 30 mobile applications we analyzed, 10 provided this service, including SAVLE, TOSS, WireBarley, SBI Cosmoney, PAYCO, NaverPay, Banksalad, Fint, Kakaopay, and Finnq.

For this service, fintech companies use balance inquiry and transaction information APIs as follows:

1)

The fintech shows the customer the asset amount at each financial company together through the balance inquiry API.

2)

The fintech shows the customer the transaction history of each financial company together using the transaction information inquiry API.

3)

The fintech offers personalized banking products or recommends a portfolio based on the customer’s bank account balance and cash flow.

Figure 13. Asset management process using open APIs.

Figure 13. Asset management process using open APIs.

4.2. New Business Model Classification

We analyzed the business models of 30 mobile applications from fintech companies that provide customers with services using Korea’s open banking API platform and classified them into four business models: simple fund transfer, simple payment, cross-border remittance, and asset management. The first business model, simple fund transfer, is composed of three APIs–balance inquiry, debit transfer, and credit transfer–and is implemented by seven mobile applications. The second business model, simple payment, is composed of two APIs, debit transfer and credit transfer, and is applied by 13 applications. The third business model, cross-border remittance, comprises five APIs: debit transfer, credit transfer, account holder identification, account balance inquiry, and transaction information inquiry, and it is provided by 12 applications. The final business model, asset management, is composed of two APIs, account balance inquiry and transaction information inquiry, and is offered by 10 applications. Among the mobile applications, five applications provided by big tech platforms such as Toss, PAYCO, NaverPay, KakaoPay, and Finnq apply three business models through a single application, excluding cross-border remittances. Mobile cross-border remittance applications are typically provided by fintech companies that focus on this area.

Table 1. New business model Classifications.

Table 1. New business model Classifications.

4.3. Effects of Open API Platforms on the Creation of New Fintech Business Models

In this study, we analyzed how open API platforms affect the creation of new business models for fintech companies. In the traditional business models before the introduction of the open API platform, fintech companies were required to connect to all banks through direct communication channels and develop messages for each bank. However, after the open API platform was established , they began to use standard APIs to communicate with banks and can combine multiple APIs to create new business models to replace traditional ones. Although the basic functions of the new business models are similar to those of traditional business models, such as fund transfer, payment, cross-border remittance, and asset management, they have been vastly improved in terms of convenience, speed, and costs.

Figure 14. Effects of open API platforms on the creation of new fintech business models.

Figure 14. Effects of open API platforms on the creation of new fintech business models.

5. Discussion

6. Conclusion

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