[Company Insight] Nice Information & Telecommunication, The Stable Growth Story of the No.1 VAN Market Leader

The domestic simple payment service market is rapidly growing. DB Financial Investment estimated the total usage amount of simple payment services in the first half of this year to be 130.9 trillion KRW, based on data from the Bank of Korea on electronic payment service usage. This represents a 29.4% increase compared to the same period last year. Recently, with the easing of social distancing, the growth rate of simple payment amounts by smartphone manufacturers, including Samsung Pay, was the highest. Simple payments using smartphones are becoming familiar. This is why Apple Pay is expected to quickly establish itself in the market upon its domestic introduction. Asia Economy reviews the business structure and status of Korea Information & Communications and NICE Information & Communications, which have attracted attention due to expectations for Apple Pay's introduction, and gauges their future growth potential.

[Asia Economy Reporter Park Hyungsoo] NICE Information & Communications is the market leader among 27 domestic VAN (Value Added Network) companies. Based on cumulative inquiry volume in the second quarter, it recorded a VAN market share of 26.1%. VAN companies build card payment networks between card companies and merchants, connecting communications. They process approvals for more than 15.7 million online and offline credit card transactions daily. They provide payment services to over 500,000 merchants nationwide. In the first half of this year, they recorded sales of 381.1 billion KRW and operating profit of 24.3 billion KRW, increases of 17.8% and 17.2% respectively compared to the same period last year.

Using terminals installed at individual merchants and their own communication networks, they provide services that allow customers and merchants to use payment methods such as credit cards, debit cards, and mobile cards. In addition to connecting payment approval data, they offer various value-added services such as slip acquisition between payment method issuers and merchants, billing, acquisition data management, and merchant complaint handling.

The main revenue sources are commissions received from payment method issuers and terminal sales revenue to merchants. Until 2018, commissions from credit cards were received as a fixed amount per transaction, but since 2018, the authorities implemented a 'VAN commission rate system reform,' changing it to a rate-based system. If credit card companies reduce commission rates, it affects the revenue of VAN operators.

VAN industry sales performance is directly related to securing many frequently used merchants by consumers. Competition is fierce for attracting new merchants and managing existing ones. Efficient management of sales incentives and installation/maintenance costs paid to VAN agencies that directly recruit and manage merchants is also an important factor in maintaining profitability.

NICE Information & Communications is the only VAN company that has built an independent IDC center, maintaining a nationwide large-scale payment network stably. Through 24/7 uninterrupted service, it has secured a competitive edge in service stability. To enhance sales management convenience, it continuously expands value-added services such as NICE Order and Tax Refund in combination with POS systems.

NICE Information & Communications is growing not only in offline but also in the online market. Based on the 'App Card Common Module' developed first in the industry in 2013, it is attracting new payment service providers as customers. In a market where simple payment usage rates are increasing, many simple payment companies have adopted the App Card Common Module, which offers high versatility and convenience. When customers register cards in the NICE Information & Communications common module, they can easily pay by credit card with just a password input without launching individual credit card company apps. The nationwide merchant infrastructure built serves as a foundation for entering various payment markets.

It is steadily expanding its business areas through subsidiaries. NICE Payments, which operates electronic payment gateway (PG) services, acts as a representative merchant in the e-commerce process. Instead of online shopping malls, it bills financial institutions such as banks and card companies and pays merchants on the agreed date. It builds an online payment system that supports various payment methods such as credit cards, account transfers, and telecommunication billing, and reconfigures it according to the needs of each merchant.

It has also expanded overseas to countries such as Indonesia and Vietnam. The annual transaction amount of IONPAY, which entered Indonesia, grew from 904.9 billion rupiah in 2016 to 65.7 trillion rupiah last year, an average annual growth rate of 213.2%. The cumulative transaction amount in the first half of this year was 38 trillion rupiah, a 36.6% increase compared to the same period last year. Based on advanced payment systems and customer-oriented service responsiveness, it has received favorable evaluations from local financial institutions and merchants.

IONPAY provides payment services to about 420 medium and large customers, including major online shopping malls in Indonesia. It supports the localization of Korean distribution companies that have entered the Indonesian e-commerce market, fostering mutual growth. With the increasing internet penetration rate in Southeast Asian markets including Indonesia, the e-commerce market is growing, and it is expected to benefit from this trend.

NICE Information & Communications is steadily increasing its market share in the VAN market, strengthening market dominance, and narrowing the gap with leading companies in the PG market. Amid expanding payment amounts due to inflation, it is expected to continue its performance improvement trend.