The North Korean regime appears to be exploring the possibility of introducing fintech-style financial services to its population.
“Fintech” is a portmanteau of “finance” and “technology” and can describe both a service or a company that provides the service.
Although the industry is growing rapidly around the world, there are no appreciable fintech services available in North Korea, which has a poorly developed financial sector.
The conditions necessary for fintech services to thrive are currently lacking. Only recently has it been possible to make financial transactions, albeit exclusively with the national financial system through the Central Bank.
With that said, changes in North Korea can take place surprisingly quickly. Only a few years ago, less than 50% of the population was using a landline. Then in 2008, the Egyptian telecommunications firm “Orascom” began a joint venture with the North Korean government, and suddenly the number of mobile phone users skyrocketed.
According to Daily NK’s sources, the North Korean authorities ordered the Central Bank to introduce electronic financial services last year. However, for such efforts to succeed, robust data is required – something the government evidently failed to take into account.
This created a precarious situation for the Central Bank, which had until that point been tasked with blocking individual transactions. However, after a sudden change in approach from the government, the Central Bank began preparing alternative measures.
It was also recently reported that North Korea’s Science Encyclopedia publisher ran an article in the second edition of this year’s journal “Economic Research” entitled “Exploring the Issue of Increasing the Use of Citizen Financial Services Using Mobile Communication Networks.”
The article discussed current attempts by North Korea to introduce modern information technology in the fields of currency distribution and electronic payment. According to the report, Kim Jong Un, stressing the need for an increase in circulating currency using mobile devices, stated, “We must raise the standard of our financial information and ensure that financial transactions are quick, accurate, transparent, and convenient.”
The increased usage of smartphones and mobile communication networks in North Korea will be a key development. The report underscores efforts by Pyongyang to develop information technology in parallel with other social, financial, and currency-related progress.
North Korea is making preparations to use the mobile network as a means to activate financial services, to realize the modernization of financial services, and to ensure the speed, security, stability, convenience, and transparency of financial transactions.
The first requirement is that North Korean citizens must have the ability to access their bank accounts on their mobile devices as well as make purchases at participating institutions (department stores, parking, gas stations, etc).
However, fintech and other financial services will not be available quickly. To create the conditions necessary for fintech to thrive, the authorities must take the necessary steps to support mobile communication networks in rolling out these financial services.
The government must explore ways to make financial transactions using mobile devices easier, expand networks, and connect financial institutions with consumer services.
Mobile communication institutions must build the structures necessary for mobile phones to offer services including shopping, mobile transactions, messaging, and access to personal financial information. This also includes installing the transmission equipment necessary for domestic networks to widely support financial and consumer activity.
Financial institutions must develop programs that allow citizens to deposit money into their accounts digitally, as well guarantee transactions when making a purchase electronically.
Participating stores and financial institutions should install modern programs featuring RFID and NFC capable services, to ensure electronic payments are executed quickly and accurately.
Secondly, the government must issue its own guarantee that the financial system will be secure and trustworthy.
Financial services for the public by way of mobile communication devices is at the core of the e-commerce system. Additionally, payment security and transparency, as well as the security of the system, form the basis for modern financial services and are necessary to expand the e-commerce industry.
Another major issue to address is the lack of trust. The ruling Workers’ Party has long sought to build a strong and prosperous nation, but has failed miserably. A prominent example is the disastrous currency reform in 2009, which was carried out recklessly and resulted in a major loss of trust toward the party and the government.
The North Korean people have been largely fending for themselves since the emergence of the markets nearly 30 years ago. Residents are no longer fooled by government propaganda that their future is guaranteed by the Workers’ Party, and have become skeptical of its policies.
If the North Korean leadership wants to earn the trust of its citizens, then it needs to bring change to its societal structure, the market, workplace, and general economic well-being. This is the only path to a reformed, open society that can eventually transition into a developing nation.
*Translated by Nate Kerkhoff