Controversy is growing over the entry of big tech companies, such as Naver and Kakao, into the financial sector, as they are not subject to the same regulations as financial firms.

Banks and other financial services firms are crying foul over a “double standard” that they claim is providing regulatory loopholes for the tech giants to more easily expand their presence in the industry by capitalizing on their platforms and technologies.

Naver and Kakao have begun to establish financial businesses. Naver earlier this month launched a cash management account service together with securities firm Mirae Asset Daewoo. The tech company established Naver Financial as a subsidiary last year, after seeing its online payment service grow.

Kakao has set up an internet bank and also has Kakao Pay, a financial platform based on mobile money transfers. Kakao Pay has acquired an insurtech firm, and is taking steps to establish a separate digital non-life insurer. Kakao Pay also launched a brokerage as a subsidiary, after taking over Baro Investment & Securities.

Financial firms are worried as the tech companies have immense potential in the financial sector considering brand awareness, capital and massive amounts of data from their e-commerce platforms. Naver Shopping has grown into Korea’s largest e-commerce platform with 30 million users as of the third quarter of last year. Kakao Commerce has seen annual transactions grow to several trillions of won.

The rapid growth of the companies’ online payment and money transfer services is attributed to Naver and Kakao’s respective dominance as the No. 1 web portal and mobile messenger service providers.

The firms also pose a threat as they hold an advantage in developing innovative technology-based services.

Financial firms are unhappy about the situation as tech companies are subject to lighter regulations even if they offer financial services.

They contend the government has been too lax in regulating big tech companies, because they have prioritized fostering innovative technology and services.

Banks and financial companies are subject to various regulations in the areas of capital requirement, financial soundness and majority shareholders’ qualification.

In contrast, if tech giants engage in the electronic banking business, they are controlled by specific laws governing e-transactions which provide leeway for them to get around these stricter regulations.

Naver is seen to have held back from launching an internet bank, despite widespread expectations, as internet banks face more regulations than companies offering financial services as non-bank entities.