[DigitalToday reporter Ji-young Lee] South Korea's electronic payment gateway (PG) market is growing rapidly, but profitability remains flat, deepening polarisation in the industry. Revenue is concentrating among large players, while smaller PG firms say they face heavier management burdens.

According to the Financial Supervisory Service's "2025 business performance of electronic financial companies," released on May 18, the number of registered PG firms stood at 190 at end-2024, up 28 from 162 a year earlier. It was the largest share among registered categories in the electronic financial sector.

Growth in headline figures also continued. PG revenue last year was 9 trillion won, up 11.1 percent from 8.1 trillion won a year earlier. But gross profit was about 2.1 trillion won, little changed from a year earlier. Expanding transaction volume did not translate into improved profitability.

Polarisation in the market is also becoming clearer. In the material, the watchdog officially referred to deepening polarisation in the sector, saying, "Small and mid-sized electronic financial companies are having difficulty improving profitability by securing their own competitiveness."

In particular, some analysis says a tougher regulatory environment after the T-Mep unsettled payments incident is increasing the burden on smaller PG firms.

An amendment to the Electronic Financial Transactions Act passed the National Assembly last year requires PG firms to separately manage, through external institutions, settlement funds they hold for merchant payouts or consumer refunds. A phased grace period currently applies, but full external management of all settlement funds is set to be implemented.

Financial authorities also significantly strengthened the management and supervision framework for PG businesses. They established a legal basis to allow corrective orders, business suspension and cancellation of registration if PG operators fail to comply with management guidance standards.

But tighter capital rules in line with expanding transaction volume are also cited as an industry burden. PG firms with quarterly payment agency volume exceeding 30 billion won must increase minimum capital to 2 billion won from 1 billion won.

As of end-2024, 29 electronic financial firms failed to meet management guidance standards, up 1 from a year earlier. The average electronic financial revenue per company among firms that did not meet the standards was 4.1 billion won, far below the overall electronic financial industry average of 54.7 billion won.

Of those, 21 firms repeatedly failed to meet the standards even after 2023. Main causes cited included insufficient equity capital, falling short of the liquidity ratio and failing to meet the safe asset ratio.

The watchdog said, "To ensure the electronic financial industry continues sound growth on the back of user trust, we will establish detailed standards for management disclosures such as financial information of electronic financial companies under the revised electronic financial law." It also said it planned to "establish new authority for financial authorities to demand measures against companies that fail to meet management guidance standards, such as capital impairment, to firmly build a sound management system across the electronic financial industry." Business suspension and cancellation of registration are also possible if firms fail to carry out such measures.

Still, some in the industry point out that many firms currently failing to meet the management guidance standards appear to have little business in practice, meaning the direction of stronger regulation is somewhat out of step with market reality.

A representative of a small PG firm said, "It is questionable how much PG transactions companies that have failed to meet the management guidance standards for a long period are actually processing." The person added, "Including companies that have effectively folded their business can make it look like a problem for the entire PG sector."

The representative said, "The direction of the external management system for settlement funds has already been decided, so we have no choice but to respond, but from the perspective of smaller firms, the most realistic burden is having to raise capital to 2 billion won." The person added, "If we cannot meet the capital requirement, it could ultimately lead to having to give up the licence."

The representative said, "Rather than applying the same regulations uniformly to large and small PG firms, differentiated rules are needed that consider scale and reality." The person added, "If the structure continues in which only smaller PG firms operating in Korea while complying with regulations face rising burdens, more companies may find it hard to hold out."