Under fintech regulation, is it a problem to operate a simple payment service without a separate license or authorization?

Depending on its structure, a simple payment service may constitute an electronic financial business, and if it is operated without a license or authorization, it may be subject to punishment for a violation of fintech regulation.

In particular, if it takes a form that intervenes in the flow of the user's funds, the possibility that the relevant statutes apply is high.

The Electronic Financial Transactions Act defines the case of receiving the user's funds to process payments, or issuing and managing a means of payment, as an electronic financial business.

In this case, it may constitute a payment gateway business (PG business) or a business of issuing and managing prepaid electronic payment means, and registration with the Financial Services Commission is required.

If the service is operated without going through this, as unregistered business, imprisonment for not more than 3 years or a fine of not more than 20 million won may be imposed.

In addition, if a violation of fintech regulation is recognized, administrative measures, such as an order to suspend the service and a suspension of business, may accompany criminal punishment, which may affect the business operation itself.

In particular, in cases where funds are held for a certain period during the payment process or the settlement structure is designed directly, there are many instances where whether the regulation applies becomes an issue.

In such a situation, based on the service structure, the review should center on how the flow of funds is designed and whether the user's funds are handled directly.

Accordingly, it is possible to determine whether it is subject to registration as an electronic financial business or, if necessary, to consider a plan to adjust the structure through a partnership arrangement with a registered business operator.

Taking all of this into account, a simple payment service may be classified as an electronic financial business depending on the operating method, so operating it without a license or authorization may lead to a violation of fintech regulation, and a prior review of the service structure is necessary.