K-Fintech: KONA I builds secure platform for cashless payment

The ICT sector has undergone a significant transformation over the past decade. It was once considered a standalone industry, but now it has become deeply integrated into every aspect of the global economy. Whether in finance, fintech, transportation, or the sharing economy, ICT plays a critical role in the operations of nearly every company today. In your opinion, how advanced is Korea's journey toward digital transformation, and how competitive is its ICT ecosystem in the current global landscape?

There is no doubt that ICT is driving a paradigm shift worldwide, fundamentally altering cultures and societies. Whether in the past or present, I am confident that Korean companies will continue to thrive in this ICT-driven world by consistently innovating. Since the year 2000, Korea has witnessed two major megatrends. From a broader perspective, Korea’s ICT ecosystem has evolved in two distinct ways. On one hand, we have industries led by large conglomerates, which have traditionally focused on hardware. On the other, there are industries spearheaded by Korean SMEs, which have been more software-oriented.

As we emerged from the Cold War, it was clear that globalization was the way forward. In response, we concentrated on developing products that adhere to global technology standards to ensure survival in the international market. Whether it's our chip operating systems, payment systems, the passport and the credit and debit cards, all our products are designed to meet these global standards, ensuring their universal compatibility.

One significant megatrend that has emerged as a result of COVID-19 is the rise of cashless payments, an alternative to traditional payment methods. A prime example is the Starbucks app, which has facilitated more transactions than many regional banks in the U.S. How do you foresee the evolution of fintech and alternative payment methods beyond cash and credit cards in the future?

There's no doubt that we are heading toward a cashless society, but I think it will be divided into two major trends. The first mega trend will be the creation of a market that meets the global standards, which is the EMV (Europay, MasterCard, and Visa) standard. The second trend will be to find a simple payment system where the local or regional payment schemes cater to the local merchants and systems in place, such as QR codes and barcodes. Although these systems may have weaker security features, they increase customer convenience and service.

The fintech sector is highly challenging because it demands constant innovation, yet there is no room for error, as we are dealing with people’s money. How do you think emerging technologies, such as AI, will impact cybersecurity? Could they pose risks?

I think AI will drive the growth of fintech in two ways. First, by analyzing customer patterns and behaviors, AI can reduce marketing costs by enabling more targeted and efficient strategies. The second key area is fraud detection. AI can proactively identify fraudulent activities, significantly enhancing security measures. We are actively integrating these two pillars—customer behavior analysis and fraud detection—into our business to leverage AI for greater efficiency and security.

The concept of blockchain has become mainstream, but it is often associated primarily with cryptocurrency. From your perspective, what are the benefits of blockchain technology, and how do you envision its application beyond cryptocurrency, particularly in areas like payment settlements for large banks?

I think we have to look into the blockchain in two ways. As you mentioned, cryptocurrency emerged from blockchain technology due to its inherent qualities, such as transparency and traceability. However, beyond cryptocurrency, blockchain offers much more. Traditionally, governments have controlled the issuance of licenses and the regulation of various activities, but blockchain technology has made these processes more accessible to anyone worldwide.

Blockchain has immense potential to drive societal change, yet its full impact is still limited. This limitation arises from the ongoing tension between governments, which hold authority and dominance, and those leveraging technology to challenge the status quo. I believe that as this conflict evolves, we'll witness even greater applications of blockchain across different sectors.

In a recent interview, Jamie Dimon, the CEO of JP Morgan Chase, expressed skepticism about cryptocurrency but showed strong support for blockchain technology. He’s encouraging big banks to adopt blockchain. How do you think private banks and payment companies can integrate blockchain into their services for customers?

Blockchain's inherent transparency and traceability make it suitable for a wide range of applications. While these qualities offer new opportunities, they also pose challenges for traditional banks, which have historically held a privileged position in granting licenses and controlling financial transactions. Because of this, many banks are hesitant to fully embrace a transparent system like blockchain. Instead, they may treat blockchain as a secondary or supporting technology.

If blockchain were to make public transactions more transparent, it could reduce the dominance that banks currently enjoy. As a result, they might be resistant to its widespread adoption. Additionally, existing regulations often serve as obstacles, further hindering the broader implementation of blockchain technology.

KONA I was founded in 1998 and has been a pioneer in Korea's digital transformation. You initially developed the transit card system, and 20 years later, KONA I has become one of the top four ICT chip operators, with over 3 billion users worldwide. Could you share the key factors behind KONA I’s success and describe the company's role today?

I left my previous job in 1997 with the goal of starting my own company. However, the Asian financial crisis hit in 1998, which dramatically altered my original plans. My initial vision was to create a system for electronic cash, anticipating the global shift toward a cashless society. At that time, Europe was already drafting their electronic cash standards, and I intended to bring a similar system to Korea. But with the financial crisis, many banks—the intended issuers of this electronic cash—went bankrupt.

In response, I pivoted to focus on the public transportation sector, which, while involving smaller payments, operated at high frequency. I adapted the electronic cash system for use in public transit, despite the significant upfront investment required. The positive reception from customers provided a strong foundation for the company’s success.

After establishing the transit card system in Korea, I expanded globally in 2002 and 2003. However, at that time, Korea was one of the few countries using such a system. One of the challenges we faced was the lack of flexibility in raising capital for infrastructure, which led to a temporary setback in our industry. We needed new growth momentum to move forward.

At that point, digital identification technology emerged as a global focus, so we developed a Java-based chip operating system (COS). We secured global certifications and met international standards, aligning our products with the global finance, telecommunications, and public transportation sectors. We then launched a global marketing campaign to promote our offerings.

Very few companies have the expertise to meet global technological standards for chip OS, and KONA I is one of them. Our cooperation with Visa, American Express, and MasterCard to build new global standards gave us deep insights into how the global payment system and fintech operate. This knowledge was instrumental in launching our own payment platform in 2016.

Leveraging this expertise, we transitioned from a technology provider to a payment service provider. Today, we are actively involved in a local currency program in partnership with the government, serving around 15 million Korean users.

When it comes to technology, you made a clear distinction between hardware and software. Historically, companies from Korea and Japan, such as Samsung, SK, and Sony, have been highly competitive in hardware. However, Northeast Asian companies often struggle to export software, especially to Western markets. What sets your company apart in the software domain compared to other Asian companies, and what are the core competencies that enabled you to transition from a purely domestic to a fully international company?

Local companies and software-oriented firms often excel in catering to their domestic markets, but expanding to meet global standards poses significant challenges. To comply with international standards and attract global clients, companies must be willing to take on the substantial costs of investing in global service programs and infrastructure. We faced these challenges head-on. By committing to this rigorous investment, we created a virtuous cycle: our heavy investments in infrastructure enabled us to attract international clients, which in turn allowed us to diversify our portfolio. Today, we focus not only on global marketing but also on strict adherence to global standards, which has been key to our success on the international stage.

You began with digital identification, met EMV requirements, and are now working on blockchain services for your clients. How important is your company’s strategy to expand your product offerings and become a one-stop shop for your clients?

Each of these technologies—whether blockchain, AI, or payment technology—has played a crucial role in driving our platform business. It’s not just about offering individual services; the real value lies in integrating all these services into a unified platform. This holistic approach is what makes our platform truly comprehensive and effective for our clients.

Your business segment is highly competitive on the international stage, with a wide range of players spanning hardware, software, and autopayment companies. Where do you see KONA I fitting into the global market today?

We’re currently in a market where fierce competition exists between fintech startups and traditional banks, both of which are investing heavily in developing their own platforms to attract customers. When we consider who will emerge as winners in this competition, it will be those who can effectively digitize and deliver services through the cloud. That’s why we launched our own platform, KONA PLATE, to provide a cloud-based solution that is accessible to all service users. This positions us strongly in the international arena by enabling us to offer comprehensive, scalable solutions.

KONA PLATE

KONA PLATE

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KONA PLATE facilitates the creation of self-branded prepaid cards and digital money through open APIs, fostering significant innovation. Can you elaborate on the benefits KONA PLATE offers to both small and large businesses?

For large conglomerates, KONA PLATE significantly reduces costs by providing comprehensive payment services, covering all their needs in one platform. Smaller businesses also benefit greatly, as they can launch their services with ease and without the burden of substantial upfront investments or financial risks. Our system is globally accessible and adheres to international standards. Additionally, as a member of the MasterCard network, we ensure that our clients can use cards issued through our platform anywhere in the world.

KONA I has introduced Konabiz and Konacard with a unique overseas travel plan, offering solutions to reduce foreign exchange commission fees and providing discounts, through the TRAVEL ZERO card. Can you elaborate on how Konabiz enhances the experience for both B2B and B2C clients?

Konabiz improves the experience for both B2B and B2C clients in several ways. For businesses, Konabiz offers services that benefit employees by providing Konacard, which supports welfare programs and simplifies transactions. When employees travel abroad, the card helps them avoid costly currency conversion fees and access various travel-related discounts. This not only reduces the financial burden of currency exchange but also enhances the overall travel experience, making it more convenient and cost-effective for employees.

TRAVEL ZERO card

Since 2018, KONA I has grown at a compound annual growth rate (CAGR) of 25%, reaching 280 billion KRW by 2023, with a healthy operating profit of over 12% last year. How do you see KONA I evolving over the next five years, and what do you believe will be the main drivers of your company's growth?

We anticipate that our community platform, based on our payment platform, will be a significant driver of revenue growth. While the market for biometric cards is still developing, we believe they hold substantial potential for the future. As the technology matures and adoption increases, we expect biometric cards to play a major role in driving our growth over the next five years.

You’ve formed a partnership with the Norwegian company, IDEX Biometrics, highlighting your commitment to innovation. How do you approach innovation in industries like FinTech, where precision is crucial and mistakes are not an option?

Our approach to innovation starts with understanding infrastructure trends. We’ve observed a major shift from magnetic stripe cards to contactless payments, with mobile devices and smartphones now serving as primary tools for digital transactions. Recognizing this trend, we identified the need for biometric solutions, such as fingerprint cards. I think that the fingerprint or biometric cards were needed, since the electronic signatures can be embedded into the fingerprint card, we can address the disadvantage of the physical cards, which don’t allow the signature of a person. So, we believe that biometric or fingerprint cards have the potential to drive significant growth for our company. We are actively preparing for this future and are pursuing collaborations with partners specializing in fingerprint and biometric technologies.

Currently, 40% of your revenue comes from overseas business, particularly from exporting IC chips and smart cards to over 90 countries, around 60 billion KRW coming from the Americas. How do you see your international position evolving in the future? Do you believe biometric cards will also drive revenue growth in regions like America and Europe?

Until 2018, our primary focus was the Chinese market. However, due to the ongoing global supply chain realignment and the push to exclude China, we are now shifting our focus to other markets. We anticipate that the chip operating system(COS) supply chain will evolve towards higher-value, premium products. Additionally, the biometric card market is expected to continue growing as it has not yet reached maturity, and the IoT chip secure element market will also see ongoing expansion.

Regarding your second question, we anticipate significant changes in the European and North American markets as well. These regions are likely to adopt biometric cards more widely to replace the traditional PIN code systems that are currently prevalent. While plastic magnetic cards were once promoted, companies are now focusing on high-value, premium smart cards that integrate multiple functions.

We have been collaborating with Visa and MasterCard on pilot projects for biometric cards for the past five years. The market and technology have already been validated, and we expect this collaboration to further drive our growth in these regions.

If we were to have another interview in three to five years, what milestones would you like to have achieved by then?

In the next three to five years, I envision us having significantly developed and expanded our payment-based community platform. Additionally, I would be thrilled to see our biometric cards being widely distributed and used around the world.

For more details, explore their website at: https://konai.com/