How does the South Korean payments ecosystem differ from the Western counterpart?
South Korea’s payment system is based on the 3-party model in which a card acquirer functions the same as the card issuer (i.e. ‘on-us’ model), whereas the Western one is based on the 4-party model: 9 Korean card companies issue cards under their proprietary marks and acquire their cards in Korea. Additionally, card schemes such as Visa or MasterCard do not function in domestic card transactions, except for cross-border transactions.
Another key difference lies in the fact that the Korean payment market has adopted a form of payer authentication method which utilizes an ActiveX tool for card-not-present transactions via internet. Each card company requires Korean cardholder to go through a proprietary payer authentication process, which is similar to Visa 3D Secure. Furthermore, the Korean government has mandated Korean cardholders to go through ‘Public Certificate’ adoption, an individual digital signature based on PKI (Public Key Infrastructure), for transactions amounting more than USD 300. While fraud rates coming from cardholders have been very low, less than 0.1% of processed values annually, compared to Western markets, the adoption of the authentication process caused much inconvenience among Korean cardholders.
Tech-savvy consumers have discovered that products are significantly cheaper overseas and, as such, cross-border ecommerce is exploding; imports through ecommerce grew 47% in 2013. So the opportunity is there. What would you advise brands/retailers to do to reach not only the tech-savvy consumer segment, but also take advantage of the full potential of the South Korean market?
I would like to advise brands/retailers who are considering to take advantage of the full potential of the Korean market about the localised SEO/SEM approach, among others. Most of the Korean consumers find products/services through localised search engines. As an extension, localization of websites, especially language in Korean should also be considered, as well as localized logistics and help desk and adoption of local payment methods. All these considerations can significantly increase trust and reliability of the website among Korean consumers. Inicis offers a range of local payment methods that can fit into the needs of any types of customers in Korea.
Having been a leader in the Korean ecommerce-related payment acceptance and processing, Inicis can advise and help global retailers and brands about a fruitful entrance in the Korean market, not only in terms of getting local payments but also in terms of selecting additional necessary ecommerce solutions in the local market through Inicis partners.
Reports indicate that South Korea has recently updated its approach to online fraud prevention which, it has been noted, is holding back ecommerce growth. Under the ‘old’ rules, a first time shopper buying goods or services online from a Korean website had to install ActiveX controls and receive an online authentication certificate. When do you expect the Financial Services Commission in South Korea to revise the regulations? And what impact will this have on ecommerce growth?
The use of Public Authentication Certificate is not mandatory anymore. Financial Services Commission (FSC) has been working to give more leeway to financial firms to choose their own authentication systems required to identify cardholders during the course of ecommerce transactions, phasing out ActiveX tools requirements.
FSC and CREFIA (The Credit Finance Association) have recently announced guidelines for an eligible payment service provider who will be allowed to store credit/debit card information within its system. Thanks to those measures, payments process and experience will be more simplified for Korean users, which will help them purchase goods/services with much more convenience and in faster ways.
Inicis has been at the fore-front of the efforts to do away with the ActiveX base payment process. Our company, as a representative of Korean payment processors, was at a meeting with the President of Korea at the Blue House last September, and stressed the needs for the adoption of global standards for more competitive growth of ecommerce in the country.
KakaoTalk, South Korea`s largest messenger app, has recently announced its initiative to start handling mobile transactions and payments. China’s largest online payment company, Alipay, is also working to become an electronic prepayment issuer under Korean law. What is your response in terms of one-click payment solutions and authentication solutions development?
Growth in mobile shopping, along with the blurred demarcation of online and offline transactions, have made it difficult to keep on with the complex method of payment process which involves ActiveX installation steps. Steady growth of purchase volumes from Apple’s AppStore and Google’s PlayStore in Korea has proved that 1-click payment solution does present values of convenience to Korean users.
While KakaoTalk has recently released their payment service called KakaoPay, the impact of the services, we expect, is to be limited, given that they have not built a network of merchants’ acceptance. There are not many merchants who accept payments with KakaoPay.
In spite of limitations imposed by KakaoPay, we acknowledge the importance of the 1-click payment solutions for our 35,000 clients and Korean users. Inicis has been working on a new 1-click payment service called ‘K-Pay’, which will enable Korean cardholders to make payments online easily and securely without any involvement of ActiveX. Additionally, Inicis has been working together with Alipay and PayPal for Korean merchants’ acceptance of cross-border payments from international cardholders.
About the author
Jason (Sun-Jae) Lee is a sales and business development professional with16 years of extensive experience in the ICT, Telco, and Fin-tech sectors, and working on cross-cultural environments across EMEA, Americas, and APAC regions.
He has been the General Manager at KG Inicis since Jan 2010. Prior to KG Inicis, he had been working for SK WiderThan UK as an expatriate since early 2000s. He attended MBA courses at Helsinki School of Economics, and graduated in 2011.
About the company
KG Inicis (publicly traded at KOSDAQ for USD 400 million of market cap) is a leader in ecommerce payment service in Korea. With 250 professionals, the company provides secure local payment services to about 35,000 ecommerce merchants, from small businesses to the world’s largest corporations, totaling USD 10 billion a year. KG Inicis helps clients thrive in the evolving world of Korean ecommerce business.
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