A Korean version of Alipay is expected to begin in the first half of next year. Recently, the Bank of Korea which is the central bank of Korea began to step up efforts to diffuse mobile debit card services, joining a move to launch new mobile debit card services such as Small Business Pay and Seoul Pay.
The Financial Information Promotion Council formed under the leadership of the Bank of Korea, announced on July 31 that the council decided to implement mobile debit card services based on users’ bank accounts. To do this, the council plans to develop related technology standards and build platforms among others.
The mobile debit card service is based on a structure in which consumers make direct payments to merchants without going through intermediaries such as credit card, VAN or PG companies. If a consumer and a merchant have bank accounts at any bank, the consumer will be able to pay to the merchant simply with a smartphone.
The service aimed to change a high-cost payment structure that depends too much on credit cards, the Bank of Korea said.
As of the end of 2016, credit cards accounted for 50% of payments in Korea. This is marked contrast to Australia, the United States and Germany and other countries where credit cards accounted for 1% to 24%. As of the end of last year, the number of cash card merchants stood at 123,000, which accounted for only 5% of the total number of credit card merchants (2.5 million).
Merchant commission rates are 2.1% for credit cards, more than double the commission rate for cash cards (0.3% to 1%). An intention to promote the use of cash cards is good, but a lack of consumer incentives is a weakness. This is because it is not meaningful if a new service does not mix well with consumers familiar with current payment services. "We will provide higher income deductions for cash cards than credit cards to lead more customers to use cash cards," said an official at the Bank of Korea. "We should discuss this matter with the banking industry, but we need to think more about incentives other than deductions."