One of the most innovative and healthy card and e-payment markets in the world, SK has long been the worlds testing ground for all things electronic financial services. Banks are not resting on their laurels however with many rolling out marketing campaigns designed to increase usage. CI reports
The South Korean card payments channel registered growth during the review period (2009-2013) posting a compound annual growth rate (CAGR) of 4.22% to reach 294.4 M cards in circulation by the end of 2013. The card payments channel valued KRW986.0 Tn (US$899.5 Bn) in 2013. Changing lifestyle demographics, the increased popularity of online shopping and higher disposable income per capita supported the growth of the volume of cards in circulation.
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The debit card category occupied the largest share and grew at a review-period CAGR of 4.19%. Over the forecast period (2014?2018) the debit card category is expected to post a CAGR of 1.84%. The credit card category occupied the second-largest share at a review-period CAGR of 2.82%. The credit card category is expected to register a forecast-period CAGR of 1.80%.
Near-field communication (NFC) devices to increase the scope of mobile payments
NFC-based platforms for smartphones increased the volume of mobile commerce (m-commerce) transactions in South Korea. SK Telecom and KT jointly sold 250,000 NFC-enabled Samsung Galaxy Notes in December 2011 alone. Mobile operator KT rolled out NFC-enabled SIM cards in 2010, while South Korea’s third-largest mobile operator LG U+ rolled out the LG Optimus which enables NFC payments. In 2012, around 10 M NFC-enables phones were sold by KT, LGU+ and SK telecom collectively. Since NFC-based smartphones encourage card-based payments, telecom operators are replacing traditional SIM cards.
Banks adopt marketing strategies to expand their market share
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By GlobalDataThe popular marketing strategies adopted by debit card competitors include partnering with shops to provide discounts, discounts on the purchase of specific goods and services or discounts targeting a certain strata of society such as vehicle owners. The common marketing strategies adopted by credit card competitors include partnering with retail outlets to offer discounts, offering reward points to customers, offering priority passes to corporate customers for airport lounges, offering convenient installment payment facilities, alphabet marketing and free technological up-grades. The marketing strategies adopted by the prepaid card category include brand promotions endorsed by actors, customization and design options, and convenient recharge facilities and partnering with foreign competitors to offer value-added services.
Spin-off credit card units increase competition in credit card category
Spin-off credit card units are expected to increase competition over the forecast period. Many banks and non-bank firms opt for spin-off credit card firms in association with existing competitors such as telecom operators. In 2010, Hana Financial established a joint venture with SK Telecom, South Korea’s leading mobile operator. Similarly, Woori bank span-off its credit card division in March, 2013, while Kookmin bank, part of the KB Financial Group span-off its credit card unit in 2011.
Rising debt and credit card delinquencies to encourage the use of debit and prepaid cards
As of September 2012, outstanding household debt in South Korea measured KRW937.5 Tn. During the first three-quarters of 2011, merchandize credit measured KRW1.6 Tn whereas in 2012 it reduced to KRW100 Bn. Over the forecast period this tendency is expected to result in a decline in demand for credit cards and an increase in the demand for debit and prepaid cards. The number of delinquent credit card borrowers measured 176,000 in 2011, almost a 30% rise over figures from 2010. The rise in credit card debt is expected to result in stricter lending practices by credit card issuers.
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Government efforts to encourage debit and prepaid card-based spending
An increase in household debt burden has prompted the South Korean government to introduce measures to discourage credit card spending. The government reduced tax deductions on credit card transactions and increased tax deductions for debit and prepaid cards. During the first three quarters of 2011, merchandize credit valued KRW1.6 Tn. Comparatively, during the first three quarters of 2012 that value was reduced to KRW0.1 Tn. In an attempt to encourage the use of debit cards, the government passed a tax reform bill in 2012 which increased tax deductions on debit and prepaid cash card spending from 20% to 30%. This was reduced from 20% to 15% for credit cards. The move is expected to encourage use of debit and prepaid cards over the forecast period.
Digital gift cards to drive prepaid card category
Digital gift cards are considered to be a key driver of prepaid gifts cards. Korean retail competitor, Home Plus, introduced digital gift cards in association with HID global in 2010. The program allowed customers to customize cards by adding text and/or company logos. This strategy resulted in 200% growth in 2010. Digital gift cards have remained popular and are expected to be an important driver of the prepaid cards category going forward.
M-payments to register growth as telecom companies increase investment in payment platforms
South Korea is expected to record a growth across mobile-based payment platforms. This growth will be primarily driven by the nation’s two-largest mobile phone operators: SK Telecom and KT who jointly released 250,000 NFC-enabled Samsung Galaxy Notes by end of 2011. Mobile operator KT rolled out NFC-enabled SIM cards in 2010 and partnered with Japan’s DOCOMO to develop a payment device that will facilitate commuters between Japan and South Korea. LG U+, a telecoms operator in South Korea began offering NFC-enabled smartphones such as the LG Optimus. Other telecom companies are planning to replace traditional SIM cards with NFC-enabled SIM cards. This is expected to increase the scope of mobile-based payments over the forecast period.
