Mobile payments are booming in South Korea, and the country’s citizens appear to prefer homegrown electronic wallets (eWallets) to those provided by the international giants of the digital economy. GlobalData estimates that the value of mobile wallet transactions in South Korea will more than double from US$181.6bn in 2020 to US$503.5bn by 2024, having already increased from just US$10.4bn[i]. GlobalWebIndex estimates for the third quarter of 2020 confirm the trend, suggesting that over half of the adult population between the ages of 16 and 64 (54%) use a banking and financial services app each month. Almost a third (29.5%) also said they had explicitly used an OEM mobile payment service.
Research published by Statista and conducted by Rakuten Insight reports Naver Pay as the most popular payment service in South Korea in 2020, used by 53% of the 9,808 people surveyed online in September of that year. Kakao Pay came narrowly in second at 51%, ahead of Samsung Pay (40%), Payco (30%) and Toss (both 24%). In contrast, the larger ones like Apple Pay and Google Pay are not particularly popular in South Korea. Only 9% of those surveyed by Rakuten Insight used PayPal, for example, 4% Google Pay, and 1.5% AliPay and Amazon Pay.
Kakao, Naver, and Samsung enjoy cross-selling benefits
The popularity of Kakao Pay would appear to rely in no small part on the number of users accessing the company’s chat or messenger services. Around 86% of South Koreans aged between 16 and 64 use chat apps, according to GlobalWebIndex. At the same time, App Annie ranked KakaoTalk as the leading app by monthly active users and consumer spending in January 2021 and 6th in terms of downloads. In addition, Statista’s Global Consumer Survey estimated that 91% of South Koreans used KakaoTalk in May 2021, significantly ahead of nearest rival Facebook Messenger (34%), Apple’s iMessage and WeChat (both 8%). Furthermore, consumers can set up a Kakao Pay account directly within the Kakao Talk app, linking their bank account and mobile phone number to make online purchases, transfer money, make investments and pay for goods in physical stores using QR codes.
Naver Pay undoubtedly benefits from its cross-over with Naver’s search engine and eCommerce app, ranked second by App Annie in monthly active users and 8th by downloads in the same month. It too can be set up directly from the Naver App using a registered South Korean mobile phone number. Its close ties help Samsung Pay with the South Korean smartphone manufacturer, but it doesn’t seem to apply to Apple. The number of South Koreans using Apple Pay as measured by Rakuten Insight is marginal (2%) despite Apple IOS devices accounting for 26% of web page requests originating from all mobile handsets in 2020 (though the figure was up 4.7% in 2019).
High smartphone/Internet penetration, coronavirus and government impetus driving market growth
High smartphone and Internet penetration, coupled with government policies designed to encourage a cashless economy, continue to fuel the expansion of mobile payments in South Korea. Various sources concur that the vast majority of its citizens (around 93%) now regularly access the Internet via their smartphones, aided by average mobile bandwidth of 169Mbit/s as measured by Ookla speed tests in January 2021 (around 64% faster than 2019 due to recent deployments of fifth-generation networks). Statcounter figures suggest those capacity improvements helped grow the volume of web traffic served to mobile phones in the country by almost 7%, to the point where they now account for more than half of the total (52%). GSMA Intelligence statistics recorded 60.7m mobile connections in South Korea in January 2021, equating to 118.3% of the country’s population.
Many South Koreans also engage in mobile commerce, with 60% purchasing a product online using their mobile phone in the third quarter of 2020. Statista estimates that the proportion of online shopping transactions conducted on a mobile device in 2020 jumped to 67.9% from 64.5% the year before. During the same period, the value of mobile shopping transactions increased 24% from US$77bn to US$96bn. The coronavirus pandemic acted as a significant market accelerator, with consumers and merchants apprehensive about handling physical cash and cards preferring contactless payments.
The increased availability of QR code-based solutions, which allowed smaller retailers to quickly set themselves up to accept cashless payments without rolling out additional point-of-sale (POS) infrastructure, also helped drive mobile wallet adoption (read DOCOMO Digital chief commercial officer Jonathan Bennett’s blog on QR code payment adoption here). One example highlighted by GlobalData comes from the Metropolitan Government, which partnered local banks to Zero Pay, a QR-based mobile payment solution that enables small merchants with annual turnover below US$69k) to accept mobile payments without any transaction fees.
Competition from telcos and direct carrier billing
Many South Koreans fund mobile payments using direct carrier billing (DCB) options provided by the country’s telcos and mobile network operators (MNOs), notably SK Telecom, Korea Telecom (KT) and LG(U+). Unlike most other countries, regulation in South Korea allows consumers to buy physical and digital goods via DCB capabilities which charge purchases directly to the users’ mobile phone bill and generally support higher value transactions and spending limits. Those MNOs have also dabbled in eWallets with SK Telecom launching T Smart Pay in 2016, KT introducing Clip in 2015 and LG(U+) partnering Smart Wallet and Biz Paynow to enable mobile payments back in 2014.
The current dominance of Naver Pay, Kakao Pay and Samsung Pay could be eroded over the next four years, with Statista forecasting an overall decline in user numbers for KakaoTalk from 39.2m in 2020 to 36.3 million in 2025. In addition, the volume and intensity of competition from other wallets (which also include L.Pay, SmilePay and Coupang RocketPay) and MNOs and those provided by South Korea’s banks are likely to put pressure on the market leaders. Still, GlobalData’s forecasts suggest that the market could grow sufficiently large in terms of new users and transaction volumes to keep multiple providers and methods of mobile payment happily in the mix. Global merchants need not worry about staying on top of this evolution, however, as providers like DOCOMO Digital aggregate all the locally relevant payment methods in markets like South Korea so that merchants can focus on what matters most, their growth.
[i] Mobile wallet payments in South Korea to surpass US$500bn in 2024, GlobalData, 11th February 2021