The Background Behind Apple Pay's Possible Entry... Hyundai Card's 'Exclusive Rights Surrender'

Deletion of Exclusive Apple Pay Usage Clause in Contract
Resolving 'Rebate' Issues in Device Distribution Support

[Asia Economy Reporter Minwoo Lee] Apple’s near-field communication (NFC) payment service, Apple Pay, is finally landing in South Korea after a lengthy process. The financial authorities, who had been deliberating for over a month, were able to reach a conclusion because Hyundai Card gave up its exclusive rights. Through this, Hyundai Card and Apple resolved the issue of NFC terminal distribution support 'rebates,' enabling the service to be launched domestically.

Hyundai Card Chooses 'Priority' Over 'Monopoly'

On the 3rd, the Financial Services Commission announced that after considering relevant laws such as the Specialized Credit Finance Business Act and the Electronic Financial Transactions Act, as well as previous legal interpretations, it confirmed that credit card companies can proceed with the introduction of Apple Pay by complying with the necessary procedures. This means Apple Pay’s domestic introduction has been approved.

Previously, Hyundai Card signed an exclusive contract with Apple Inc. in the United States in August last year and had been preparing for the domestic launch of Apple Pay. In December last year, the Financial Supervisory Service even completed the review of the terms and conditions. However, the launch was delayed due to the 'rebate' issue surrounding the terminal distribution plan, which subsidizes the installation costs of NFC-compatible terminals at large merchants. The Specialized Credit Finance Business Act prohibits providing card terminals free of charge to large merchants, considering it an unfair compensation.

In 2019, the Financial Services Commission allowed exceptions for compensation payments related to the distribution of 'Just Touch,' an NFC payment standard jointly developed by domestic card companies. However, even for new technology terminals, if the distribution is intended for exclusive transactions with partners, compensation payments are considered illegal. Since less than 10% of the 2.9 million domestic credit card merchants have NFC terminals capable of using Apple Pay, rapid terminal distribution was key to success. Hyundai Card resolved this by giving up its exclusive rights.

A Financial Services Commission official explained, "Hyundai Card decided to remove the clause granting it exclusive domestic usage rights for a certain period in the Apple Pay contract," adding, "This means not only Hyundai Card but other card companies can also use the service, thus avoiding violations of the Specialized Credit Finance Business Act." Hyundai Card will not monopolize Apple Pay but will be the first to offer the service.

Although the exclusive clause was removed, it is uncertain whether other card companies will be able to offer Apple Pay immediately, as it depends on Apple’s decision. An industry insider said, "Other card companies can request contracts with Apple, but Apple might prolong the contract process or delay it in various ways to guarantee Hyundai Card’s priority usage rights. How this will proceed depends on Apple’s discretion."

Service Expected to Launch Early Next Month... Fees and Terminal Distribution Are Key

The service is expected to launch early next month. It will initially be available at locations equipped with NFC terminals that support Apple Pay. Convenience stores, Shinsegae Department Store, Lotte Department Store, Starbucks, Paris Baguette, Lotte Hi-Mart, and IKEA are reported to already have NFC terminals installed.

Small and medium-sized merchants with annual sales under 3 billion KRW, who find it difficult to receive terminal installation support from card companies, can receive NFC and QR code terminals from the Credit Card Social Contribution Foundation and the Win-Win Growth Committee. The Financial Services Commission explained that some of these supported terminals will be capable of Apple Pay payments.

With Apple Pay’s arrival, the use of NFC, a contactless method, is expected to increase compared to Samsung Pay’s Magnetic Secure Transmission (MST) method. The Financial Services Commission stated, "We expect that the launch of Apple Pay will enhance payment convenience for general users and promote the development and introduction of new payment services based on NFC technology."

However, there are concerns that the 0.1?0.15% fee per consumer transaction that Apple demands from card companies may hinder the service’s expansion. Nonetheless, some analyses suggest that Hyundai Card could increase its market share by gaining support from the younger generation, who show high loyalty to Apple products in South Korea.

▲Apple Pay in operation