As one of the most developed markets in the Asia Pacific (APAC) region, big things are expected from South Korea’s card payment market. While debit and prepaid cards are holding steady, credit cards have suffered a blow due to the country’s economic slowdown, leading to the first fall in credit cards issued since 2008
South Korea’s payment cards market is one of the most competitive and attractive in the Asia Pacific (APAC) region. It is mature and over-served, with credit and debit card penetration rates of 1.8 and 3.0 respectively per inhabitant in 2014.
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In terms of transaction value and volume, South Korea’s payment cards accounted for 6.0% and 17.0% shares respectively in Asia-Pacific in 2014.
M-payments gaining traction in South Korea
Between 2010 and 2014, the South Korean cards and payments industry moved towards mobile technology, as telecoms companies moved into payments. M-payments using near-field communication (NFC) are gaining popularity among Korean consumers. This demonstrates the convergence of mobile and traditional card-based payments, and signals the rising dominance of telecoms companies in payments.
Non-banking card issuers such as Hyundai Card and Lotte Card could lose market share to both telecoms companies and banks.
To capitalise on the growing m-payments market, non-banking card issuer Samsung Card is anticipated to launch Samsung Pay m-payments in the second half of 2015.
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By GlobalDataSouth Korean government looking to rein in credit card spending
The number of credit cards in circulation fell in the previous five years. The number of credit cards issued in South Korea fell in 2012 for the first time since 2008, due to the prolonged economic slowdown and government regulations to curb overuse of credit cards and control household debt within the nation.
An increase in household debt has prompted the government to introduce measures to discourage credit card spending, reducing tax deductions on credit card transactions and increasing them for debit cards.
A tax reform bill in 2012, increased tax deductions on debit card spending from 20% to 30%, while for credit cards it was reduced from 20% to 15%. In April 2013, the government introduced new rules for closure and automatic cancelation of dormant card accounts.
The South Korean government offers income tax deductions on card-based spending to encourage the use of payment cards instead.
The maximum deduction amount for credit card-based spending is $2,740.10 (KRW3 million).
The deductible income tax amounts are 20% of the eligible amount for credit card spending and 25% of the eligible amount for debit card and prepaid card spending.
However, the tax reform bill, passed in August 2012, lowered the tax deduction on credit card spending from 20% to 15% of the eligible amount.
In addition, the tax deduction on debit card spending was increased from 20% to 30% of the eligible amount.
These factors, in tandem with security concerns raised by leakages of credit card customer data, are anticipated to further decrease the number of credit cards in circulation over the next five years.
Data security breaches dampen the credit cards market
In January 2014, the FSS announced that the information of 20 million credit card users had been stolen by a temporary employee of personal credit ratings firm Korea Credit Bureau.
In a separate incident on April 11, 2014, the FSS announced that hackers had stolen the personal data of 200,000 credit card users, using some to produce counterfeit cards and make fraudulent payments of $113,859.60 (KRW120m).
As a result, the regulator ordered all credit card issuers to upgrade fraud-detection systems to prevent similar data thefts in the future.
However, the incidents became a major issue in the country, and this is anticipated to affect the credit cards market for some time yet.
Digital gift cards to drive the prepaid cards market
Digital gift cards are seen as a key driver of prepaid gifts cards.
In South Korea, cash gifts are common for holiday periods, such as weddings, birthdays or birth celebrations, and are generally viewed as a very attractive alternative to straight cash.
Prepaid gift cards are widely used as gifts for both individual and business users, and digital gift cards are a key driver of the prepaid gift card market in South Korea.
Korean retailer Home Plus introduced digital gift cards in association with HID Global in 2010, which allowed customers to customise cards by adding text messages and company logos.
Store staff were given intensive training to assist customers with issuance of online cards.
Digital gift cards have remained popular and are expected to be a key driver for prepaid cards over the next five years, all the way up to 2019.
Utilising tourism
Another example of a prepaid card is the Korea Pass card.
Launched by the Korea Tourism Organization, it is aimed at foreign tourists staying in Korea, allowing them to load up to US$456.7 onto the card for use on subways in various cities, accommodation, and entrance fees to popular tourist destinations.
It is a variation of a product that Korean consumers are already very familiar with and confortable in using.
The well-known contactless T-Money card is used on transport networks around the country and also in stores, and is issued by the South Korea transport authority.
It permits swift reloading of credit through automatic recharging machines at subway stations, and also at convenience stores for less than $1.40.
Retail sales grew between 2010 and 2014, from $213.4bn in 2010 to $267.9bn in 2014, at a CAGR of 5.85%.
The three largest department store operators, Hyundai Department Store, Lotte Shopping and Shinsegae Corporation, all offer payment cards.
Subway virtual stores have emerged as an important business driver of the South Korean payment cards market.
Growing retail and e-commerce markets provide scope for card payments
Virtual stores were introduced in 2011, enabling users to purchase goods such as food, electronics, office supplies and toiletries at subway stations.
Dedicated areas at subways or bus terminals feature life-size images of goods, and each carry a small barcode.
Shoppers can download a smartphone app and initiate purchases by scanning the barcodes; orders placed in the morning are delivered by the evening.
The virtual store concept is being adopted by outlets such as Tesco and e-mart.
South Korea’s e-commerce market comprises several domestic sites, with international retailers entering the market.
In 2009, eBay acquired domestic online retailers Auction and Gmarket.
Similarly, in 2013, the US-based Groupon closed its local operations and acquired Ticket Monster.
E-commerce posted a CAGR of 16.77% between 2010 and 2014, rising from $13.8bn in 2010 to $25.7bn in 2014.
Over the next five years (starting 2015), the e-commerce value is anticipated to grow further at a CAGR of 15.52% to reach $53.5bn in 2019.
The growth of e-commerce was also supported by the availability of high-speed internet access, which coupled with heavy government promotion and avid consumer interest led to a surge in online shopping across the country.
