The Rise of Prepaid Recharge in South Korea’s Payment Landscape
As customer payment method preferences in South Korea shift from credit cards to prepaid recharges, the influence of electronic financial companies is expected to expand. This trend is driven by benefits like monthly changing incentives, higher income deduction rates, and the decline of traditional “value cards” offered by credit card companies.
Advantages of Prepaid Recharges
Prepaid recharges offer several advantages over traditional payment methods. Unlike credit cards, they don’t require a separate card issuance, and often come with benefits that change monthly. Notably, the income deduction rate for prepaid recharges is 30%, higher than that of credit cards.
Naver Pay, a popular platform, accumulates up to 2.5% points when using Naver Pay Money for recharge payments, exceeding the 1-2% accumulation and discount rates typically offered by credit cards. Kakao Pay also provides exclusive coupons for payments made with Kakao Pay Money through Kakao Gift.
Factors Driving the Shift
The discontinuation of “value cards” in the credit card industry, due to decreasing profitability, has contributed to the growing popularity of prepaid recharges. While the number of merchants accepting prepaid recharges is currently more limited than those accepting credit cards, the higher accumulation and discount rates, coupled with increased loyalty to the issuing electronic financial companies, are driving increased usage.
Impact on the Payment Ecosystem
The expansion of government-issued local love gift certificates, with an annual issuance volume of approximately KRW 20 trillion, has also played a role. Companies like Korea Minting and Minting Corporation, Kona I, and Bizplay are key operators in processing these payments.
For simple payment companies, the increased use of prepaid recharges reduces the burden of card payment fees. This is leading to a trend of establishing proprietary payment services and prepaid recharge options, particularly within the platform industry. Distribution platforms such as Coupang, Musinsa, Carrot Market, and Today’s House are actively introducing their own payment systems.
While card companies also operate simple payment services, their usage rate is declining as major online platforms prioritize prepaid recharges from companies like Kakao Pay, and Payco. The payment process with credit cards often requires more steps – general payment, credit card selection, card company selection, and app card payment – compared to the streamlined experience offered by these platforms.
Current Market Preferences
Although credit cards remain the most preferred payment method in South Korea (46.2%), the preference for simple payments is steadily increasing. With the annual usage of simple payment services exceeding KRW 1 trillion, the use of prepaid recharges is expected to continue its upward trajectory.
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