Negotiating the Complexities and Reaping the Rewards of South Korea’s Dynamic and Rapidly Expanding E-Commerce Marketplace

By Roman Tazetdinov

What makes South Korea such a vibrant and rapidly expanding e-Commerce market and what are the greatest opportunities for international businesses wishing to capitalise on this potential from a payments perspective?

To those online businesses looking to expand their success in the world of e-Commerce, South Korea offers one of the greatest ‘windows of opportunity’. As one of the much-vaunted ‘Asian Tigers with a population in excess of 50 million underpinning the 3rd largest economy in Asia, and the 10th largest globally, the country is enjoying increasing affluence, a superior infrastructure and one of the most advanced smartphone markets globally. This is supported by Asia’s highest internet penetration rate of some 97%, the world’s 3rd fastest internet speeds and a populace where 85% of consumers have smartphones.  

Mobile shopping now accounts for over 65% of the total value of the South Korean e-Commerce marketplace  whose overall value stood at US$ 96 billion in 2020, $121 billion in 2021, and is estimated to exceed US$ 226 billion by 2025. This remarkable growth trajectory shows no indication of abating. 

It is unsurprising, therefore, to see a growing number of ambitious international businesses flocking to the region to provide the goods and services being demanded by increasingly tech-savvy and wealthy local consumers, in sectors as far-ranging as luxury travel, gaming and lifestyle goods. Global brands are cashing in, with the value of online purchases from foreign retail sites rising from $3.5bn to $4.5bn over the same period. Live shopping – where consumers use social media to make instantaneous purchasing decisions – is on the rise, with sales forecast to hit ten trillion South Korean won (SKW), around $7bn, in 2023.

But what key challenges, payment trends and opportunities do these businesses face in order to capitalise on this fast-flowing and exciting marketplace. 

Unique payment landscape with very local nuances

It is imperative that online businesses seeking success in South Korea need to develop a thorough understanding of the local payment landscape. This would include, for example, recognition that over 80% of the online payment marketplace is dominated by cards and that half of these are local cards while the remaining 50% are co-branded. 

Recognising South Korea’s potential as a highly lucrative market, credit card companies there are moving rapidly to develop a safer and more convenient international payment system for Korean consumers. Credit card companies such as KB Kookmin Card, Lotte Card and Shinhan Card have developed a wide array of benefits through joint collaboration with assorted internet retailers, including offering discounted prices if the consumer pays with a specific credit card.

A further benefit to processing payments locally is that businesses are not required to pay card fees arising from international card schemes, and consumers do not need to pay additional cardholder surcharges that arise from paying through such methods. From a consumer perspective this increases payment conversion since some buyers who are not aware of this surcharge from the outset, question these additional charges once they appear on their bank statement.

A good payment services provider will ensure that international retailers are totally conversant with, and supported throughout, the payment process and all its local idiosyncrasies. 

‘Barriers to Entry’

In South Korea, as is the case in many other countries, for payments to be processed locally, businesses are obliged to set up an ‘in-country’ entity which can take months, or even years. Alongside that lies the perennial issue of having to understand and adapt to a very distinct language, culture, business practices and local regulations – each of which is critical to operating successfully in any marketplace.

Furthermore, payment authorisation is done in the local currency, but because the KRW is a restricted currency and cannot be repatriated outside of South Korea, there are some deep-rooted issues and complexities that need to be addressed when looking to provide merchants and their consumers with the optimal ‘payment experience’. Merchants in particular want swift, secure and seamless access to their revenue streams back in their country of origin. This is important because Asian currencies are more volatile than USD and EUR which can impact FX rates negatively and reduce overall revenues. For example, it would be of significant benefit to have access to guaranteed rates, fixed intraday, enabling merchants to repatriate their funds without hindrance. Again, localised knowledge gained in the South Korean market itself, through dealing with partners who understand these issues and know how to surmount them, is paramount.

Well-chosen partnership is the key to optimising access

South Korea is clearly one of today’s most interesting global economies and an increasingly sophisticated one. Consumers are becoming ever more demanding in the level of service they receive throughout the purchasing process. They expect slick yet efficient options for how, when and where they pay, particularly online. Any merchant seeking to capitalise on this tremendous pent-up demand needs to understand the rules, follow the trends and deliver on expectations. 

With the fundamentals of a payment solution in place, merchants can spend more time focussing on building up their businesses. Merchants recognise the value because, once a suitable solution is implemented, the approval rate of transactions processed locally can rise significantly. Worldline clients, for example, are seeing improvements of up to 4% higher than before due to the solution we built together with our Korean partner INICIS. The challenges associated with entering South Korea are solved with knowledge of the local market and relationships we’ve built.

About the Author

Roman Tazetdinov is the Head of Geo Expansion at Worldline’s Digital Commerce division servicing enterprise level merchants. He has been a key driver of the company’s exclusive payments acceptance in new geographies. Roman is a full stack online payments development leader with 17 years of experience.