Digital finance in transition, between opportunity and risk [Pacific Future Finance]

Financial infrastructure is changing rapidly, including payments and settlement

Prepare by making active use of the 'regulatory sandbox'

The landscape of digital finance is shifting rapidly. Stablecoins, blockchain-based capital markets, and even physical AI—concepts that were considered experimental just a few years ago—are now beginning to move in real markets. As impressive as the pace of change is, it is also time to examine the risks accumulating beneath the surface.

Rising payments and settlement, physical AI

The area drawing the most attention is payments and settlement. Public interest in stablecoins has cooled somewhat amid the downturn in the crypto market, but corporate moves are accelerating instead. Naver Pay, Kakao Pay, and Toss are facing off with different strategies in the offline simple-payment market, which exceeds KRW 1 trillion in average daily transactions; this is viewed as a move to preempt distribution networks ahead of any future introduction of a won-denominated stablecoin. Mirae Asset Securities became the first in Korea to successfully issue KRW 100 billion in blockchain-based digital bonds, signaling that distributed ledger technology is beginning to penetrate traditional capital markets in earnest. Together, these two trends indicate that the foundations of financial infrastructure are being reshaped.

On the production floor, adoption of 'physical artificial intelligence (AI)' is accelerating. As robots evolve beyond simple repetitive tasks to the level of judging situations in real time and responding, new points of contact are being created where manufacturing and finance intersect. A future in which factory operating data is incorporated into corporate credit assessments, and AI continuously monitors the condition of physical assets to dynamically value collateral, is not a distant prospect. Korea’s status as a manufacturing powerhouse—and its possession of world-class on-site data—becomes a key asset in this transition.

"We need to actively utilize the financial regulatory sandbox"

However, the faster the pace of change, the deeper the institutional vacuum becomes. If stablecoins take hold as an actual means of payment, issues such as management of reserve assets, anti-money laundering, and user protection in the event of system outages will immediately rise to the fore. For blockchain-based bonds, liability is unclear when smart-contract errors or hacking occur. As AI becomes more involved in financial decision-making, governance gaps materialize—algorithmic bias, unexplainable decisions, and accountability for damages caused by malfunctions. These issues are difficult to address through internal controls at individual companies alone.

Even so, the financial regulatory sandbox is providing some breathing room. In its regular meeting in January this year, the Financial Services Commission newly designated 34 innovative financial services, bringing the cumulative total to 1,035. Like Viva Republica (Toss) raising the limit on prepaid payment instruments for foreign visitors to Korea, this制度—allowing experiments and validation first in areas where legislation struggles to keep up—serves as a practical buffer between innovation and safety. Both financial institutions and fintech companies need to use this channel more proactively.

The transition to digital finance is an irreversible trend. What matters is not suppressing innovation, but building risk-management systems alongside it so that innovation remains sustainable. Recent trends suggest it is reasonable to see the shift as moving beyond simple technology adoption and into an intelligent ecosystem in which technologies such as artificial intelligence (AI) and blockchain are combined. Accordingly, risk management is undergoing a paradigm shift from 'after-the-fact response' to a focus on 'real-time prediction and control.'

Therefore, work to upgrade financial firms’ internal controls, AI governance, and the legal and institutional foundations must begin now, in step with the current pace of change.

Bae, Kim & Lee LLC’s Future Finance Strategy Center (Head: Senior Advisor Han Jun-seong) was launched in May 2024 and is building a top-tier lineup of experts across finance and IT—including virtual assets, electronic finance, regulatory response, and information security—in line with the acceleration of digital innovation in the financial sector and advances in financial technology.