Card, not cash, is king in South Korea

Central bank reducing paper money and coins, aims for country to go cashless by 2020

Ms Kim holding the debit card she uses for daily expenses. Only about 20 per cent of all payments in South Korea are made with cash, as credit cards, debit cards and T-money become more popular.
Ms Kim holding the debit card she uses for daily expenses. Only about 20 per cent of all payments in South Korea are made with cash, as credit cards, debit cards and T-money become more popular. PHOTO: KIM JINHA

Whenever she needs to use money - whether to take the subway, buy a drink from a vending machine or pay for lunch at a restaurant - Ms Kim Mee So, 29, will whip out her debit card.

It is the only card the teacher carries with her in her bag, and the only one she needs for daily expenses.

The Visa debit card is linked to her bank account and equipped with a smart chip that also allows her to use it as a public transport payment card, known as T-money.

"I don't use real money because it's heavy to carry around, and I don't have a wallet so there's no place to put it in. The only time I use cash is to pay for food delivery and give an allowance to my brother who's in high school," she said.

Ms Kim is among a growing group of South Koreans who are relying less on cash and more on cards and electronic payments, as the world's most wired country started early last year to open up its finance technology (fintech) industry and encourage more people to adapt to IT-based systems, including payments via mobile phones.

Only about 20 per cent of all payments here are made with cash - among the lowest in the world - according to the Bank of Korea (BOK).

The central bank is now aiming for the country to go cashless by 2020, beginning with plans to phase out coins so as to reduce the cost of minting them. It has already cut back on issuing paper money.

A system is being tested for retailers who receive cash to give back change not in coins but as credit in the customer's T-money card or credit card.

It will be rolled out by next year if pilot tests prove to be successful.

Going cashless is a global trend, led by Scandinavian countries Norway, Sweden and Denmark. Singapore has also committed $225 million to grow fintech start-ups as part of its plan to go cashless.

In South Korea, electronic payments gained popularity after the introduction of T-money in 2004, as the country sought to streamline public transport payments with a single touch-and-go smart card.

  • What is T-money?

  • South Korea introduced a smart card called T-money in 2004 to streamline public transport payments.

    Here is how it works:

    •T-money is a stored-value card with a smart chip for fare deductions, much like Singapore's ez-link card.

    •Modified T-money chips can also be fitted into credit cards and debit cards, and even into mobile phone SIM cards, which means one can just tap one's phone to take the bus, subway or taxi.

    •It is also accepted at many convenience stores, retail shops and restaurants.

    •By the end of 2014, T-money was used in 43 million transactions daily.

    •There are 15 million users in Seoul and the surrounding Gyeonggi province, which have a combined population of 22 million.

Much like Singapore's ez-link card, T-money is a rechargeable stored-value card with a smart chip for fare deduction. The chip has been modified to fit credit cards, debit cards and even mobile phone SIM cards - which means people can tap their phones to take the bus.

T-money can also be used at most convenience stores and some retail shops and restaurants.

By end-2014, T-money was used in over 43 million transactions a day. There are more than 15 million T-money users in Seoul and the surrounding Gyeonggi province, which have a combined population of 22 million. Apart from the T-money card, credit and debit cards have also become a way of life.

The success of T-money and the popularity of mobile devices have also prompted a new wave of fintech developments.

Tech giants including Naver, Kakao and Samsung compete to build and bolster their mobile payment platforms to capture consumers shifting from computers to mobile devices.

Text-messaging app company Kakao, for instance, has its own mobile payment platform KakaoPay that allows its seven million users to shop online as well as pay electricity bills.

The Seoul Metropolitan Government jumped onto the bandwagon last December, launching an app called STAX to allow users to pay property and car taxes and water and sewage fees on mobile phones.

Business consultant Lee Youn Joo, 31, said cash has become less important nowadays and is used only on special occasions like weddings and funerals, and when paying street vendors and for valet parking.

"Koreans are used to convenient transaction means and... the use of credit cards and mobile banking will continue to increase," he said, adding that he uses credit cards for 90 per cent of his monthly spending.

But as more people choose to go cashless, there are concerns about credit card security, overspending and whether the elderly can adapt to electronic payments.

Student Terry Nam, 21, is concerned about security, as the country has witnessed major data leaks involving big credit card companies.

"Our distrust of privacy protection is very high. The government should explain what it has done to resolve this issue and strengthen the punishment for private data leakage crimes," he said.

Wary of credit card companies, graduate school student Kwon Joo Hyun, 27, uses a debit card instead and avoids online payments that require credit card details.

But she still supports the BOK's plan, adding that the government can introduce a kind of cashback card for elderly folks to use when coins are phased out.

But Dr Sohn Sang Ho, senior research fellow at the Korea Institute of Finance, feels the BOK's plan to go cashless by 2020 is "too ambitious". He said there is still a big group of older people who rely mainly on cash transactions, especially in traditional markets, and it will take a long time for them to convert to electronic payments.

"Going cashless can be our long-term goal, but it's not possible in the near future," he said.

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A version of this article appeared in the print edition of The Sunday Times on May 01, 2016, with the headline Card, not cash, is king in South Korea. Subscribe