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Why is Apple Pay struggling to get purchase in Korea?

Hyundai Card remains sole provider due to fewer NFC readers, higher commission fees

By Choi Ji-won

Published : April 17, 2024 - 17:29

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Apple Pay's logo on an iPhone (Getty Images) Apple Pay's logo on an iPhone (Getty Images)

In March 2023, Apple Pay made a grand entrance into the South Korean market, amassing 1 million users on its debut day alone and doubling that figure within three weeks.

But a year later, the initial fervor surrounding the mobile payment service of the iPhone maker appears to have dwindled considerably amid the lack of widespread availability.

With Hyundai Card's exclusive partnership set to expire in September, no other card companies have followed suit in integrating the service. Speculation had arisen regarding the potential adoption of Apple Pay by several firms, including Shinhan Card and BC Card, though both firms have denied the claims.

"We are evaluating the implementation of Apple Pay, but as of now, no definitive decisions have been made," a Shinhan Card official said on condition of anonymity. A BC Card official commented similarly.

Why is Apple Pay -- one of the world's most popular digital wallets -- still struggling to penetrate the Korean market?

Korea boasts one of the most vibrant mobile payment markets globally. Last year, daily mobile transactions surpassed traditional physical card spending for the first time, reaching 1.47 trillion won ($1 billion), with contactless payments at in-person stores surging by 36 percent to 311 billion won.

At the forefront of this mobile payment revolution is Samsung Pay, the digital wallet service offered by Samsung Electronics. With a commanding market share of 49 percent of all mobile payments and about 70 percent of in-person wireless transactions, Samsung Pay continues to dominate its home turf.

Apart from Samsung's dominance in the smartphone market -- accounting for 70 percent of all Korean adults, according to a Gallup Korea survey in July -- Samsung Pay's compatibility with magnetic secure transmission devices also contributes to its success. MST devices are the same terminals used for physical credit card payments.

For stores to accept Apple Pay, they need near-field communication, or NFC, readers. However, only about one in ten stores in Korea have these devices, with installation costs averaging around 200,000 won per terminal.

"Card companies shoulder the expense of installing new NFC readers at stores to facilitate Apple Pay transactions, and this poses a risk for most issuers. Hyundai Card benefited from the support of its parent company," suggested an industry insider.

Operating within a range of 10 centimeters between devices, NFC technology offers a high level of security and interoperability and is widely considered the global standard for mobile payments. In Korea, the technology is widely used in public transportation, and for this reason, Korean iPhone users anticipated they would be able to utilize Apple Pay for public transport.

Apple Pay still does not service transit payments in Korea. Its operator Apple had restricted other third-party payment systems from utilizing its contactless payment technology due to security concerns. Upon pressures from antitrust regulators in Europe, it announced in January that it would allow other digital wallets the access, yet, remains to hold the doors closed in Korea.

Differences in the format of NFC technologies used locally and globally create another hurdle. According to a transit card company official, using Apple Pay for local public transportation requires "technological cooperation" between Apple and the local firms, incurring additional setup costs.

Customers experience new devices at an Apple store in Yeouido, Seoul, on Oct. 13, 2023. (Getty Images) Customers experience new devices at an Apple store in Yeouido, Seoul, on Oct. 13, 2023. (Getty Images)

Another source noted that such technological gaps can be bridged, or already have been, yet local transport card issuers and Apple Pay have not reached an agreement yet. For contactless public transport payments, Apple Pay must enter into a partnership with T-Money or other local transport card issuers.

Adding to the challenge is Apple Pay's current substantial commission rate here. Hyundai Card reportedly incurs a 0.15 percent commission fee per transaction via Apple Pay, whereas local digital wallets like Samsung Pay offer their services for free.

During last year's parliamentary audit in October, Rep. Yun Chang-hyun of the ruling People Power Party raised concerns, criticizing Apple Pay for imposing higher commission fees in Korea, compared to 0.03 percent in China and 0.05 percent in Israel. According to Yun, Hyundai Card consequently faced 2.27 billion won in losses in the first five months after introducing Apple Pay.

Yun had also estimated that if Apple Pay were to capture 10 percent of the local credit card market, card issuers would have to pay 341.7 billion won to Apple.

While Apple Pay has failed to revolutionize the digital payments landscape here, industry insiders believe it's only a matter of time for Apple Pay to expand availability.

"NFC technology is the global standard in most countries, so its adoption in Korea is inevitable. As more companies embrace NFC, they may consider partnering with Apple Pay to attract new customers," explained a source.

Moreover, iPhone usage is poised for growth, especially among younger generations in Korea who increasingly favor iPhones over Samsung phones. In a Gallup Korea survey last year, while 70 percent of Korean adults used Samsung phones, among 18- to 29-year-olds, 65 percent reported using iPhones, marking a 12 percent increase from the previous year.

Hyundai Card also benefited significantly as the first adopter of Apple Pay. Despite a downturn in the industry last year, Hyundai Card alone saw its net profit rise from 254 billion won to 265 billion won. Its overseas credit card usage accumulated to 2.7 trillion won last year, elevating Hyundai Card to the industry's top. Additionally, the company gained 718,000 new members since February 2023, surpassing KB Kookmin Card to become the third-largest issuer in the industry.