[Pay War]① Apple Pay Arrival... Signal of a Major Shift

Official Announcement of Apple Pay's Entry into Korea
Storm in a Teacup VS New Era of Easy Payments
Card Industry Ranking Changes Expected
Could Mark the First Year of NFC Expansion

[Asia Economy Reporter Minwoo Lee] After rumors circulating for about half a year, Apple Pay is set to launch soon in South Korea in partnership with Hyundai Card. Opinions are pouring in that it could either be a tempest in a teacup or a catalyst for opening a new era. Ultimately, analyses suggest that the 'pay war' among card companies and big tech firms like Naver and Kakao will intensify further.

On the 8th, Hyundai Card officially announced the domestic launch of Apple Inc.'s contactless simple payment service, Apple Pay. Since signing a contract with Apple in August last year and beginning preparations for the domestic launch, Hyundai Card had remained silent on Apple Pay adoption, stating "there is currently nothing to confirm." Now, they have finally made it official. Earlier, on the 3rd, the Financial Services Commission allowed the introduction of Apple Pay domestically after considering relevant laws such as the Specialized Credit Finance Business Act and the Electronic Financial Transactions Act, as well as past legal interpretations, opening the way. Although the exact launch date is undecided, the industry expects it to be early next month.

Industry reactions are mixed. Some see it as a 'tempest in a teacup' limited to the card industry, while others predict it could herald a new era in the payment industry.

Finally Landing: Apple Pay... Expected Changes in Card Industry Rankings

The most anticipated effect is the increase in market share for Hyundai Card, which partners with Apple Pay. According to the Credit Finance Association, Hyundai Card's market share was 17.8% (based on domestic individual usage as of December 2022), ranking third among seven major domestic card companies including Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Woori, and Hana. It is analyzed that Hyundai Card can capture MZ generation (Millennials + Generation Z) users who prefer iPhones. In a survey conducted by Korea Gallup in July last year, over half (52%) of people in their teens and twenties reported using iPhones. Hyundai Card has already experienced significant benefits from exclusive partnerships. For example, after exclusively partnering with the membership warehouse discount store 'Costco' in August 2018, its annual net profit increased by 6.71% year-on-year to 164 billion KRW.

In particular, 'Open Pay,' launched last December as a joint effort by the card industry, could take a direct hit. It started as a method allowing cards from different companies to be linked and used within one card company’s app, but currently only three card companies?Shinhan, KB Kookmin, and Hana Card?participate. Among these, only KB Kookmin Card's KB Pay supports contactless Magnetic Secure Transmission (MST) payments like Samsung Pay. There is insufficient incentive to attract Samsung Electronics smartphone users who have already experienced Samsung Pay or future users who will experience Apple Pay. Ryu Changwon, a researcher at Hana Financial Management Research Institute, pointed out, "Simply building an open platform does not guarantee success in surpassing big tech simple payment apps."

However, since the adoption rate of Near Field Communication (NFC) terminals applying the contactless payment technology (EMV) essential for Apple Pay use is low, some suggest the impact on the entire simple payment industry beyond the card industry may be limited. Among 2.9 million domestic merchants, only about 5-10% have adopted these terminals. A representative from a major card company said, "It will inevitably take time for users’ payment experiences, such as those with Samsung Pay, to change," adding, "While it may attract attention immediately, the short-term impact could be small."

NFC Infrastructure Finally Expanding... A New Era Begins

There is also a forecast that a tectonic shift in the payment industry could occur as the newer NFC technology, rather than the MST method used in existing card terminals, becomes widely adopted. It is analyzed that the influence will inevitably extend beyond simple card company ranking changes to the domains of big tech firms like Naver Pay and Kakao Pay.

NFC has advantages over MST, including generally faster transmission speeds and stronger security through encryption technology. Unlike Samsung Pay, which requires physical contact with the card terminal for a certain time, or QR code payments that require taking a photo, NFC enables 'swipe-like' payments. Although there is an issue with terminal adoption, NFC has already become a global standard, and as other card companies gradually join following Hyundai Card, it is expected to spread faster than anticipated. The launch of Apple Pay could resolve the slow expansion of NFC infrastructure. This is also why Kakao Pay and Naver Pay, which have increased offline payments based on QR code payments, are highly alert.

Through this, the rapidly growing simple payment market is expected to expand further, and as competition intensifies, consumer benefits may increase. According to the Bank of Korea, the average daily usage amount of simple payment services increased about 2.5 times from 287.6 billion KRW in the first half of 2019 to 723.2 billion KRW in the first half of 2022.

Seo Jiyong, president of the Korea Card Association and professor of business administration at Sangmyung University, said, "Terminal adoption may not be as big an issue as expected because if both card companies and merchants judge that adopting NFC terminals supporting Apple Pay is beneficial, they will quickly accept it even if they have to bear various costs themselves," adding, "If competition arises across the entire simple payment industry, each company will have to offer benefits to attract consumers, which could lead to a major shift in the market focus from suppliers to consumers in the mid to long term."