As one of the “Asian Tigers” – Southeast Asian countries marked by rapid GDP growth in the postwar period – South Korea has raced forward in recent decades to become a dynamic, digital-forward economy comparable with its Western forerunners. Growth in the country’s e-commerce market has been particularly dramatic. It could be set to expand even further.
Investment in digital infrastructure, research and development now means that South Korea boasts the third-fastest internet speeds in the world and the highest internet penetration in Asia. Purchases made on smartphones increased from $92bn in 2020 to $121bn in 2021. Global brands are cashing in, with the value of online purchases from foreign retail sites rising from $3.5bn to $4.5bn over the same period.
Against this backdrop, consumer habits are changing and industry disruption abounds. Live shopping – where consumers use social media to make instantaneous purchasing decisions – is on the rise, with sales forecast to hit ten trillion South Korean won (SKW), around $7bn, in 2023. Korea’s payment card market, traditionally dominated by eight main players, is poised for major tech-led disruption; Apple Pay is setting up operations in the country via support from Hyundai Card, while a new partnership between Samsung Pay and Korean tech giant Naver will combine the former’s market-leading reach with the latter’s commanding online presence.
Merchants seeking a slice of the Korean payments pie have a hard job knowing how to get started. Adopting a payment solution that both straddles the country’s multifaceted market in the present and can adapt to changes coming down the road is crucial.
Cracking a unique country
Jason Lee, CEO of INICIS, the largest online payment service provider in Korea, refers to South Korea as a “special” market. Digital-forward, regulation-heavy and growth-intensive, merchants must treat it with caution.
One dimension is intense localisation. Merchants setting up in the country cannot use a one-size-fits-all approach; Korea’s eight major card companies all demand separate solutions for authenticating payments. On top of this, Korean issuers treat payments from foreign countries as risky. This means cross-border payments in Korea tend to see far lower approval rates than those from domestic acquiring banks. Korea also has a distinctive charging and taxing system that can hike costs on international transactions, including additional cross-border card scheme fees and a digital service tax. To cap it all there are tight currency restrictions in place on the SKW, plus challenging compliance procedures to confront before cross-border processing becomes possible.
Yet Korea’s e-commerce market is set to explode to USD $226 billion by 2025. The population is 97% internet-enabled. US retailers in particular could exploit considerable competitive advantages. For example, Korean consumers dealing with US firms pay no tax on goods up to the value of $150, compared with $100 from retailers elsewhere. In addition, each Korean customer has a unique ID that can be used to trace their online purchases, which is mandatory to clear customs when goods are shipped to Korea overseas.
In short, the Korean market combines unique stumbling blocks with unique advantages. Merchants need to develop strategies to maximise their reach while minimising the risk of new cost burdens.
What merchants need to know
International merchants devising a new payment solution for the Korean market should start off by following some best-practice tips. First, they should familiarise themselves with Korean payment habits. For example, plugging card details into websites is uncommon and carries associations with fraud. Korean buyers are more familiar with smoother authentication; failure to implement these methods could see conversions slow. And merchants must have distinctive systems in place to deal with payment flows from each of Korea’s leading card providers – or else risk missing out on a substantial chunk of the market.
Putting these processes in place can be a daunting challenge for beginners. Working with an expert like Worldline can help soothe the growing pains. The firm’s full-service cross-border payment solution offers access to local cards, localised checkout processes, local acquiring to maximise checkout rates, SKW to USD conversion and cross-border remittance in over 20 other currencies to circumvent currency controls. All of this comes without the additional cross-border fees or the need for a local entity.
Furthermore, Worldline’s approach is based on a single API integration into a global platform, meaning merchants operating in Korea benefit from a payment solution that will work in dozens of other markets too. And, as Lee notes, the setup is far speedier than tackling eight different providers simultaneously: “In addition to keeping up with the diversity of different payment methods and authentication requirements in Korea, our main benefit is that merchants don’t need to do anything other than contact us and integrate for a general card flow.”
Lee points out that, with the fundamentals of a payment solution in place, merchants can spend more time focussing on building up their businesses. “Merchants recognise the value because, once Worldline’s solution is implemented, the approval rate of transactions processed locally is up to 4% higher than before,” he explains. “When they recognise this, they want to do more on top of that. They can authenticate niche card providers and roll out alternative payment methods, because they understand the value.” The challenges associated with entering South Korea should not deter merchants from accessing the opportunities on offer. A one-stop solution offering smooth payment solutions in Korea – and many other high growth markets besides – is just a few clicks away. Download the whitepaper on this page to find out more.