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By Anna J. Park
One of the most popular payment methods for Koreans is using debit or credit cards. According to statistics from the Bank for International Settlements (BIS) in 2018, Koreans topped the list in credit card use per person, and ranked second in the amount of annual credit card payments. The tendency is continuing, with about 80 percent of payments here completed using debit or credit cards.
This could change with the advent of various types of mobile payment services. Some market watchers say leadership in the payment market will soon shift from card companies to internet-based payment service providers.
The Bank of Korea said recently that the total value of purchases made through internet-based payment services last year stood at 81 trillion won ($68 billion), a whopping increase of 54 percent from the previous year.
One in three people in Korea surveyed by the Financial Supervisory Service (FSS) said they used such payment services, while four out of five in their 20s said they have experienced it.
With such an increase, major payment providers are raking in handsome profits. Kakao Pay earned 141 billion won from user fees last year, a 103 percent jump from 2018.
Currently, more than 20 million users of Kakao Pay log a monthly transaction amount of four trillion won ― similar in size to a major credit card company's monthly revenue.
Naver Financial, the operator of Naver Pay, also reaped 86 billion won from user fees in just the first two months after it separated from its parent company Naver in November last year.
However, these internet-based payment providers still have to pay a large amount of fees to card companies, as their payment services let users either register their bank accounts or existing credit or debit cards. About 20 percent of the payments by the providers are made from bank accounts, while the remainder are from the card registrations.
"For these payment service providers' revenues to grow in the near future, they need to secure customers who register with their bank accounts," Hwang Hyun-joon, an analyst at DB Financial Investment, explained.
This is the direction that payment service providers are moving in; if more customers use the payment services with their own money from bank accounts charged to the payment service platform, it would create a so-called "lock-in effect," making the user spend more time on the provider's platform.
Naver Financial gives out 1.5 percent in cash points if a user deposits more than 50,000 won in Naver Pay. Coupang, another major e-commerce business, also gives out 1 percent in cash when a user pays with money deposited in its CouPay service.
"Over the long-term, we cannot exclude the possibility that a credit card is reduced to one payment method used by an internet-based payment service provider," Park Tae-joon, director at the research center affiliated to the Credit Finance Association, wrote in a recent report.
Card companies have launched various innovative payment methods, such as BC Card's "unmanned" app payment, which does not require a cashier, or Shinhan Card's "face pay," allowing users who previously registered their face at banks to pay by simply getting their face scanned at check-stands.
Some have come up with hybrid payment systems, taking advantage of both; Samsung Card has recently launched "Samsung Pay Card," which provides a maximum 5 percent discount if paid with Samsung Pay. Users can use both the Samsung Pay mobile app and a real plastic card, and various benefits will be provided through the mobile pay app.
Naver Pay has also collaborated with Shinhan Card in launching Naver Pay Line Friends Card; and Kakao Pay has also launched its Kakao Pay Card 2, both aiming to attract more customers to their payment platforms.
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