Two years in, Apple Pay struggles to gain foothold in Korea

A promotional image of Apple Pay at Hyundai Card's exhibition space in Seoul, March 2023. Newsis

When Hyundai Card announced the much-awaited adoption of Apple Pay in March 2023, Jeong In-a jumped with joy.

As a devoted Apple user, the 24-year-old university student had envied Samsung Pay users who could leave their wallets at home. She even applied for a new Hyundai Card, anticipating Apple Pay would become the new payment norm.

Two years after its launch, however, the widespread adoption of Apple Pay still seems distant, and Jeong has stopped using the service.

"There are too few places where I can use it. I just carry around physical credit cards nowadays," she said.

When Apple Pay first debuted in Korea, public excitement was high. First-day traffic surges made headlines, with people flocking to Hyundai Card for new cards. Within just a month, the company issued over 355,000 cards — a 156 percent increase compared to the same period the previous year.

However, the payment system has yet to see significant expansion, as the exclusive contract between Apple Pay and Hyundai Card expired after just one year.

Shinhan Card and KB Kookmin Card, two of Korea's largest credit card companies, are reportedly preparing to adopt Apple Pay, but they have not officially confirmed their plans.

Without securing enough locations early on, Apple Pay's growth quickly stalled.

A key barrier to adoption is the requirement for near-field communication (NFC) terminals to process Apple Pay transactions. Many Korean business owners rely on traditionally-used magnetic stripe card readers. With replacement costs of approximately 200,000 won ($137.67) per terminal, financial concerns discourage adoption.

Besides the costs, there is little incentive to upgrade, as only a portion of Hyundai Card users are the target audience. And the current card terminal processes the Samsung Pay transactions smoothly. As a result, NFC terminal adoption remains low, at around 10 percent, reducing the availability of Apple Pay.

A customer pays using Apple Pay at a restaurant in downtown Seoul, March 2023. Newsis

On the other hand, the card industry attributes the sluggish adoption to Apple Pay's limited advantages, especially amid the declining industry outlook.

So far, Hyundai Card has seen poor results from adopting Apple Pay. According to data obtained by Rep. Lee In-young of the Democratic Party of Korea, Apple Pay transactions totaled approximately 2 trillion won last year, accounting for just 1.1 percent of Hyundai Card's total transaction volume.

Despite its minimal contribution to overall sales, Apple Pay also imposes additional financial burdens.

Unlike other mobile payment services in Korea, Apple Pay charges transaction fees. Card issuers must pay up to 0.15 percent of the transaction amount to Apple — three times higher than the 0.05 percent fee in China. Additionally, Visa or Mastercard charges a separate fee of 2 cents per transaction.

If all eight major Korean credit card companies were to adopt Apple Pay, they would collectively incur approximately 11.6 billion won in annual fees, according to another data set Lee obtained from the Financial Supervisory Service.

Domestic mobile payment providers, such as Samsung Pay, have expressed concerns over the exclusive fees paid to Apple. This has raised the possibility that they, too, may decide to impose similar fees in the future.

Still, industry officials say credit card companies cannot ignore Apple Pay's market presence.

"While usage may not be significant yet, Apple Pay-related news still attracts considerable public attention," a credit card industry official said. "This proves the service’s popularity."

He also noted that Apple Pay is a strong long-term strategy for attracting future customers.

"Teenagers and people in their 20s are the most loyal iPhone users. In the next 10 to 20 years, they will become a crucial economic demographic, even though their current credit card usage is relatively low."

Critics note that if more credit card companies adopt Apple Pay, new concerns could arise. One major issue is the potential shift in fee burdens, which may fall on either merchants or consumers.

"Credit card companies have been cutting consumer benefits under the guise of cost reduction, yet regulatory responses have remained lukewarm," Seo Ji-yong, a professor of business administration at Sangmyung University, said. "If Apple Pay adoption further increases fee burdens, the discontinuation or downsizing of cards with high customer benefits is likely to become more common."