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South Korea’s mobile payments market poses huge opportunities for western firms

South Korea’s mobile payments market poses huge opportunities for western firms

The consumer-facing fintech sector had a relatively late start in South Korea, but is rapidly growing now. This is opening up a wealth of opportunities for western companies which can provide complementary technologies and services - as long as they’re savvy enough to take the right approach to the Korean market.

Stalled by regulations 

Despite some of the fastest internet connections in the world and a smart phone penetration of over 77%, Korean progress in fintech has historically been stalled by tight financial regulations. Aiming to protect consumers, the country’s Financial Services Commission (FSC) has required electronic payment providers to establish a complex identity verification system which made what should be an easy-to-use service cumbersome and inefficient. 

But, as the fintech sector grew in the west, the Korean authorities realised the need to reshape regulations to become more innovation-friendly. From October 2014, the FSC finally started to loosen its grip, allowing electronic payment companies to store users’ credit card information and abolishing old-fashioned security measures. This paved the way for the pioneers of mobile payment services in Korea - Toss and Samsung Pay - and created an ecosystem for a mobile payments market which grew to be worth over USD 8.8bn by the end of 2017.

Main Korean players

In contrast to the global electronic payment market where service providers are generally backed by financial institutions and IT companies, Korea’s electronic payment industry has players from a variety of backgrounds - from hardware companies (Samsung Electronics) to retailers (Shinsegae Group) and social media platforms (Daum-Kakao and Naver Corporation). 

Toss is a particularly interesting case. Originally a start-up project launched in 2015 by Korean company Viva Republica, the convenient peer-to-peer (P2P) money transfer service had raised over USD 47.4m from PayPal and venture capital firms by 2017. A year on, it’s received a further infusion of USD 39.5m from Singapore’s sovereign wealth fund, GIC, and Sequoia China. The CEO of Viva Republica, a dentist by training, intends to turn Toss into a powerful consumer finance platform, introducing products such as micro financing and remittance services. 

Traditional credit card companies have also been quick to follow fintech trends and now enable simple payments via mobile applications. 

As a result, the Korean payment market has become highly competitive.

Though it’s hard to pinpoint a single leader of the simple payment market as diverse platforms are used for different types of transactions, the Korean Financial Supervisory Service named Samsung Pay as the most popular service in Korea. Launched in August 2015, nine months after Apple Pay in the US, Samsung Pay was always well-positioned to win over Korean consumers, roughly 55% of who own Samsung smartphones. And the company’s transaction volume surpassed USD 17.1bn by April 2018. 

Another prominent player in the contactless payment market is PAYCO. A subsidiary of NHN Entertainment, PAYCO recently surpassed USD 1.2bn in payments made via the service.

Naver Pay and KakaoPay, meanwhile, have built payment services on their existing platforms and also boast impressive user numbers: 24 million and 20 million respectively in Q3 2017. Naver Pay belongs to Naver Corporation, the internet giant which runs both the biggest search engine in Korea and Naver TV, the main competitor of YouTube. KakaoPay is integrated with KakaoTalk, by far the most popular messenger with 99% of Korean internet users communicating via the app.

Ecommerce booming 

Ecommerce is now booming in Korea, and easy payments are a major factor in the success of online retailers. With 60% of online purchases made via mobile in 2017, integrating simple payment services with ecommerce platforms is a must for retail groups such as Lotte and Shinsegae. Apart from working with third party providers, these companies operate their own services, L Pay and SSG Pay, attracting consumers with cash-back benefits. But the costs of expanding and marketing such payment services are significant, with small and medium-sized companies finding it hard to compete with the all-mighty conglomerates. 

Traditional banking and credit card companies are well-aware of the trends and increasingly recognise the need to take innovation seriously. Mobile card applications connected to physical cards are simplifying online payments, and fintech innovation hubs and accelerators sponsored by traditional finance giants are connecting banks and credit card companies with the fast-paced fintech community in Korea.

Abundant growth opportunities

But despite this rapid growth, simple payments and other fintech segments such as P2P lending and micro finance are still in their infancy in Korea - and opportunities for growth are abundant. 

Fintech investment in the country had surpassed USD 765m by the end of 2016 and USD 2.2bn will be invested in the industry by the Korean government alone over the next three years. 

Most importantly, the Korean government recognises the need to reshape its financial services and data protection policies. A new ‘regulatory sandbox’ initiative from the FSC will allow fintech start-ups to operate outside the usual, restrictive framework for up to two years to encourage innovation. 

Appetite for western partnerships 

The stakes are high for Korean firms. Finance platforms are expected to evolve into massive data platforms, aggregating information about purchase patterns and consumer behavior. Security and privacy are of paramount importance, as is the technology for managing this data. Distanced from major fintech innovation hubs such as London and Silicon Valley, Korean companies, start-ups and conglomerates alike have great appetite for partnerships with the right overseas players to address these challenges. 

This has opened a lucrative window of opportunity for US and European companies specialising in complementary fields such as information security, data analytics and digital authentication - areas where Korean companies trail their international counterparts. 

Artificial Intelligence and blockchain technologies also continue to attract significant Korean investment, and fintech-oriented applications of these technologies are certain to generate great interest. 

The traditional financial sector - banks, card and insurance companies - as well as ecommerce and IT businesses in Korea are all attractive partnership targets for innovative Western companies. And technology-scouting departments at such Korean companies are responsible for identifying relevant technologies from across the world which could strengthen their own developments. 

Great commitment 

All this said, successful partnership and sales programmes for western firms in Asia require great commitment, with Korea no exception. 

Koreans prefer to work in their own language with local teams and expect on-the-ground support for any collaboration. Korean customers are demanding and expect their partners to be on-hand to support them at all times. 

In addition, since the Korean finance sector is highly conservative, building trust through face-to-face communication is essential. Once built, however, a relationship with one strategic partner will open doors to others.

Huge opportunities 

So, the opportunities for the right western companies to strike partnerships with Korean fintech players are huge, and it’s a market well worth targeting as part of an international growth strategy. 

But having great technology is only half the battle: the right contacts and understanding how to do business in Korean are also vital ingredients for success.

Ekaterina Gnezdilova
About the Author

Ekaterina Gnezdilova

Ekaterina is part of Intralink’s team in Seoul, helping western companies drive sales programmes and forge partnerships in Korea. She specialises in the ecommerce sector.

To discuss whether Ekaterina could support your business, you can contact her on

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