When pockets are empty of wallets
By Yoon Ja-young
What is the main thing a wallet and a mobile phone have in common? Both are carried by the owner all the time. One of the two however, may soon disappear and the survivor will be the mobile phone.
There have already been some signs that the mobile phone will eventually absorb the wallet. Mobile credit cards, where the USIM (user services identity module) chip including credit card information is embedded in a cell phone, is attractive to users seeking convenience, and the surge of smart devices is accelerating the absorption. Convergence is going on between telecommunications and financial services, the two main pillars of the service industry.
Using BC infrastructure
The merging of mobile and financial services is enhancing convenience for users. Businesses, meanwhile, have their own reasons to pursue the two in one option.
In the eyes of Pyo Hyun-myung, president of KT’s Mobile Business Group, the ongoing trend is a great opportunity for the country’s largest fixed-line company and second biggest mobile carrier to solidify its leading position in the telecommunications industry and expand business territories.
In February, KT agreed to take over BC Card, a local payment services provider, and they are in the final stage of the deal. BC was established with investments from local banks.
Pyo has a clear strategy to maximize synergy from the acquisition based on the card firm’s payment infrastructure.
“BC Card is not a plastic issuer but a payment services provider. What we are interested in is upgrading the current infrastructure by combining it with mobile technology and developing a new system that can offer benefits to more people,” Pyo said.
“What’s on my mind is the traditional market. Credit cards are not widely used in traditional markets. We are studying ways to develop an upgraded payment system tailored for this area to ensure transparency in taxation as well as boost the business in those markets,” he added. “Simply put, we believe that we are able to find ways to lower fees for affiliated stores and offer benefits for more people by taking over BC.”
He hinted that the firm’s move to develop a new system is nearly complete, saying, “A master plan will be unveiled once its acquisition process is finalized.”
Market analysts said that the KT’s move is a step in the right direction.
“It was a good choice for KT,” said Choi Nam-gon, an analyst at Tong Yang Investment & Securities, regarding the acquisition of BC Card by KT.
KT was the first telecommunications company to acquire a financial business here. “There are synergetic effects in terms of both consumer benefits and usage of information. This kind of convergence is value adding,” Choi said.
Pyo said KT is seeking convergence with diverse non-telecommunication services, such as media, transportation, and financial services.
Choi points out that convergence is the answer for mobile carriers that are being pressured to identify new income sources. “KT’s move to go beyond the telecommunications business is seen positively. For one thing, regulations are tough on its main business.” Messenger applications like Kakao Talk and Internet phone services like Skype are also threatening mobile carriers in the smartphone era. Some expect mobile carriers to degrade into regional network operators.
Convergence between telecommunications and finance is especially meaningful. Few industries are as closely intertwined as these two. Financial services have been evolving congruently with the advances in telecommunications. From the consumer side, they have evolved from a personal visit to the bank to telephone banking, followed by Internet banking and then to mobile financial services. Stock traded using PDAs (personal digital assistant) and smartphones totaled 92.8 trillion won last year.
Both credit card companies and mobile carriers have huge consumer databases, which is a big asset for them, but Choi points out that the synergy could be even greater when they combine their database.
“Mobile carriers can receive payment information of their users and analyze the data. That can be used for marketing, providing the optimized credit card service for each individual, based on their buying patterns.” By matching the location information of the users with their credit card payment information, they can find out where the consumers go and what they buy. By analyzing their preferences, they can send the right mobile advertisement at the right time.
NFC accelerating convergence
Near field communication (NFC), which enables bidirectional communication within a radius of 10 centimeters, is attracting giant IT companies to jump into mobile financial services. Google launched Google Wallet in May, which enables payments using smartphones and provides discount coupons as well. Mobile carriers like Verizon and AT&T as well as manufacturers like Nokia and Samsung Electronics are all eying NFC.
Choi Soon-ho, an analyst at Eugene Investment & Securities, says that NFC will substitute credit cards for some of its strengths. “For one thing, NFC is faster than credit cards. The plastic should be first read and the credit card company should then send approval to the terminal. The user then must sign the receipt. With NFC, this entire process is completed by simply placing the NFC smartphone close to the reader,” he explains.
While credit cards are used simply for settlement, NFC can utilize additional data, such as product information or coupons and memberships. Consumers, for instance, may use their smartphone to read the brochure to receive a discount coupon. People won’t have to carry numerous credit cards — Koreans have 4.7, on average — mileage cards, membership cards and coupons in their bulging wallets. Upon settlement, the smartphone user may be sent recommendations for additional shopping items.
As NFC works only within a radius of 10 centimeters without using any network, it is immune to information leakage or hacking, the biggest obstacle to mobile financing so far.
KT and SK Telecom, the country’s mobile kingpins, however, are employing different tactics regarding telecommunication and finance. KT is more interested in improving payment infrastructure through its mobile technology for now.
“Even now, the credit payment infrastructure is poor at traditional markets, but the cost of building it up would be burdensome for small merchants. We are developing ways to cut settlement costs by applying our mobile technology,” Pyo said. KT wants to enhance effectiveness in overall card services, including card issuance, franchise management, settlement and billing to subscribers, by applying IT technology.
SK Telecom teamed up to launch the Hana SK Card, which is currently leading the mobile credit card market with over 90 percent in market share. “The SK business model is costly for now. It requires marketing expenses for Hana SK Card to compete with plastic cards. KT, meanwhile, is providing IT infrastructure to BC Card. The KT strategy is less risky while benefiting both,” said Choi of Tong Yang Investment & Securities.