Alipay Entering into South Korean Market

During the Lunar New Year, more than 100,000 Chinese visited South Korea. The way people shop in a duty free shop, or in a convenience store is quite different than before: They pay with the world’s well-known Chinese mobile payment, Alipay, the most successful case of Fintech in the world. In Seoul main streets and on Korean internet sites, we can easily find advertisements of Alipay. China UnionPay already entered into the South Korean market, and even a brand of my credit card issued in South Korea is UnionPay. They partner with BC Card, South Korea’s card issuer and they have been expanding their business in South Korea. China’s payment has entered into South Korean market in earnest and South Korean players have been getting into the game. T-money, the largest prepaid card player in South Korea and Hana Bank, the fourth largest bank in South Korea partnered with Alipay. As an example, Chinese tourists in South Korea can pay back to Alipay’s account after using T-money for foreigners if they have any remaining credits. T-money is available not only transportation including metro, bus and taxi but also for payments at convenience stores and other selected shops. Also, T-money has introduced a new service for domestic users, providing compensation system for Mobile T-money when a user loses a phone, providing a safer environment for T-money users. For Hana Bank, they haven’t started a service with Alipay but it will be launched soon. After launching a new service with Alipay, Chinese tourists will be able to pay with Alipay at merchants of Hana Bank. In other words, they can use Alipay in broader places like orthopaedics, nail salon and hair salon than what T-money service offers. The similar case has been seen in South Korea and Japan. Cashbee, South Korea’s mobile payment card partnered with Japan’s three major MNOs, NTT DoCoMo, KDDI and Softbank. Japanese tourists can now pay with their smartphone in South Korea after installing a dedicated application. A wave of Fintech has come to Korea. The country is attempting a different approach with the use of Fintech. Some players already recognized their current approach is not acceptable anymore hence it is the time to shift their strategy for future growth. Payments area has been getting global and more attractive for users. For example, Alipay gives 4.5% interest when a user deposits money. Yes, it’s attractive. However, players should evaluate what is important for their future growth without tapping into the current trend. Establishing an initiative for business growth should be the overriding concern now amid mounting attention to Fintech.

Start-up of internet-only banks in South Korea

South Korea’s government has begun to move to permit internet-only banks. It is in discussion with a group of financial institutions, vendors and other institutions, and the outline for internet-only banking services will be set up around April. In South Korea, most banks, we can say all banks, already offer direct banking including internet, mobile and smartphone, and many customers are accustomed to them. However, dedicated internet banks have not been allowed to date due to regulatory and other issues. Currently, there are two main challenges to setting up an internet-only bank in South Korea. 1. Identity confirmation through direct channel: the current law requires customers to open a new bank account at a face-to-face channel with their ID. So people visit a bank branch at least once to start banking transactions, although direct banking services are at a quite mature level in South Korea. The requirement for identity confirmation should be revised accordingly when permission is granted for dedicated internet banking. 2. Relaxation of the Separation of Banking and Commerce: in the current law, institutions belonging to the commerce sector cannot provide banking services, and their ownership share in a bank is stringently limited at 4%, compared to 25% in US and 20% in Japan. To encourage the entry of various kinds of sectors into the internet-only banking market, the relaxation of this law is one of the important issues. Currently, a number of institutions including banks, vendors and other sectors are negative on entering the market and will keep a wait-and-see attitude for now. Before entering the market, they should learn from case studies of overseas internet–only banks. To cite a case, there are many good examples of online account opening using the advanced facial recognition tools. I will appear at a conference on internet-only banking in Seoul on March 10, and will present case studies and learnings from the Japanese market. Anyone interested in the event details, please visit http://fintechkorea.com/.

E-money in Japan and South Korea

Japan and South Korea are among the leading countries which have tried to spread the use of e-money from an early stage. Due to the different backgrounds they have, they have been going the separate paths for e-money growth. In recent years, the Japanese e-money market has emerged as one of the important payment methods. Especially with the consumption tax rise from April 2014, the e-money market has received more attention because the usage of loose coins would increase due to the consumption tax rise from 5% to 8%. On the other hand, in South Korea, the e-money market growth has been sluggish because of the heavy usage of credit cards and check cards. Although there are two major e-money providers, T-money and Cashbee, South Korean credit cards and check cards are available for not only big purchases but also for small purchases so consumers do not recognize the need for e-money. In Japan, Suica, e-money from East Japan Railway Company and nanaco, e-money from Seven & I Holdings, exceeded 100 million transactions for a month in March 2014. It is the first time for nanaco to exceed 100 million transactions. All e-money providers have said that transaction volume has been growing. Celent believes that this trend will continue in the future by improving customer experience although one of the obstacles in the way of the e-money market growth has been considered the lack of the customer experience. In South Korea, Kakao Talk, one of the most popular social networking services in South Korea announced that they will launch a mobile wallet service called “Bank Wallet Kakao” in the first half of this year. At the very beginning, this will be used for customer to customer (C2C) payment and will expand to business to customer (B2C) payment. For both countries, the e-money market has entered a new phase although the reasons for growth are different. From the case studies of both countries, we can learn that e-money has diverse potential. I believe that e-money will create a new value and become a more accepted payment method.

Potential Growth in South Korean banks

At first, I offer my condolences for the loss and missing of beloved families or friends at the South Korean ferry disaster. South Korean banks have faced difficulties in remaining the steady growth in the recent years. There are some reasons for this – a low economic growth and a low interest-rate environment. Banks in South Korea took action to reduce their staff to cut down the cost. The Asia Economy Daily said that 700 staff reduced in South Korean bank industry last year. Alsonches, a number of banks are considering or start reducing branches. In such a small country, there are thousands of bank branches at this moment. Celent believes that South Korean banks have a number of ways for the future growth with their experiences. For example, they can expand their business model or IT models to overseas. They have been trying these strategies for decades but it is difficult to find a “success” story. They should seek the various ways to bring their businesses to overseas. In the process, they may make some changes on their business models for oveaseas expansion. In South Korea, mobile banking services are advanced and activated. Celent believes that they have a number of case studies for mobile banking and mobile payment. They may introduce these to overseas, not only developing countries but advanced countries. In conclusion, they should study regulations, acceptable business models and IT trends in a country and should consider and study how their case studies are applied to each country beforehand.

App Card Makes Payment Easier

In 2013, South Korean payment industry entered a significant phase of payment. It is the introduction of App Card. App Card is the smartphone application which takes the place of plastic credit card and is used for both online and offline payment. In September 2013, six South Korean card companies including Shinhan Card, KB Card, Lotte Card, Hyundai Card, Samsung Card and NH Card collectively launched App Card. By the introduction of App Card, the process of smartphone shopping was streamlined. Previously, when a customer purchase something on smartphone with a credit card, they had to enter the credit card number every payment and PIN number and public key certificate were also required. The public key certificate should have been copied from the computer when a customer uses a credit card for smartphone payment at the first use. However, by using App Card, they can use smartphone payment with only six-digit PIN number after downloading the application and storing the credit card number to get started. Users don’t need to enter the credit card number on a smartphone every single payment. Capture1 This enhancement has been enjoying high popularity. For the first two months after the launch, the number of App Card users tapped 900 thousands and reached 3 million only for four months. Celent estimates that this growth will continue in 2014, albeit turning a little slower pace. Capture Source: SBS This service cannot be used at a number of offline shops at the current moment but the number of acceptance of App Card is expected to expand in 2014. The growth of offline acceptance will bring swifter growth for App Card.

Bancassurance, Next Only to Agent Distribution Channel in Asian Insurance Market

While my earlier article discussed in general on how Bancassurance channel is shaping up in various regions in Asia Pacific. This write-up sheds some light in terms of market share and growth of Bancassurance in various regions in A Pac. It is evident that this channel is picking up in most of Asia Pacific region. However the channel is still next only to the dominent Agent channel. In Mainland China, Bancassurance accounted for 27 percent market share of total insurance sales, agent channel dominated the market (37 percent market share) in 2009. Insurance market in China is undergoing structural changes with in the market and this is expected to boost the premium income of insurers via banking channel. In Hong Kong, Banks have become an important distribution channel for life, health and mandatory provident funds, supplying up to 40 percent of the market’s new business. HSBC and Hang Seng Bank together held 40 percent of the Mandatory Provident Fund (MPF) market. In Taiwan, the concept of “One Stop Shop” has become a common philosophy for banks. Premium income for individual life insurance new business from bancassurance accounted for 68 percent in 2009. Banks contributed 88 percent to new individual annuities, 66 percent to new investment-linked businesses, and 51 percent to new life insurance businesses. While P&C market is dominated by agents and brokers (67 percent of the market share). Personal accident/ health Insurance is mostly under taken by Insurance companies themselves, thus accounting for 91 percent of this line of business. In Singapore, insurance agents make up the main sales channel for life insurance. The market share however has declined from 66 percent from 2004 to 61 percent in 2009. Bancassurance accounted for 22 percent of the total weighted new business premium income Bancassurance market share in Malaysia has grown from 45 percent in 2005 to 51 percent in 2008. The agency network had traditionally been the main distribution method but has gradually lost some ground to bancassurance. Agency network accounted for 47 percent market share in 2004 which has come down to 44 percent in 2008. Domestic insurers account for over 80 percent of Bancassurance market. In South Korea, solicitors and internal employees make up the main sales channel for the life insurance industry. In 2008, the bank channel grew to 37 percent next only to solicitors and internal employees of the insurance companies with 54 percent. Indian life insurance market is dominated by tied agents, more so with the state owned Life Insurance Corporation of India (LIC). Over 75 percent of new business premium is generated by individual agents. However, individual agents in private companies account for less than 50 percent of total sales, while more than 40 percent is attributed to the bank and direct selling channel. Banks and brokerage firms have 30 percent and 20 percent respectively of the P&C insurance market. Markets such as Thailand, Malaysia and China have better acceptance of bancassurance channel as opposed to India and Singapore as brokers and agents are still major insurance carriers in these region. It is also noteworthy that all developing and accelerating markets are evidencing high potential for growth in Bancassurance.