Online and Mobile Payments Surge... 2nd Quarter Sees Disappearance of 2.55 Million Check Cards (Comprehensive)

7 Major Credit Card Companies' Check Card Issuance Decreased by 2.55 Million in Q2
Contactless Payments Increased Due to COVID-19 Impact, While Simple Payments Rose

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] #. Office worker Kim Eun-ji (27) has been using Naver Pay frequently as online shopping increased due to COVID-19. By recharging her account and using it, she can receive up to 2.5% of the payment amount as points, and income deduction benefits also apply, so she tends to use Naver Pay for relatively small amounts. She has used a debit card only a few times. Kim said, "I use credit cards for offline or large payments, and pay with pay services online, so I rarely use debit cards. I used debit cards for income deduction benefits even though their perks are less than credit cards, but now I use simple payment methods."

The payment market is rapidly changing due to COVID-19. Mobile simple payments, or 'pay' services, rather than cash or card physical transactions, have become central to daily life. In particular, debit cards, which offer fewer benefits than credit cards, have seen a sharp decline in issuance and are becoming marginalized in the market. As simple payment methods like Naver Pay and Kakao Pay become the main transaction tools for the future potential customers in their teens and twenties (the 1020 generation), there is speculation that the influence of card companies may decrease in the future.

Debit Card Issuance by Seven Major Card Companies Decreased by 2.25 Million in Q2

According to the Credit Finance Association on the 6th, as of the end of June, the number of debit cards issued by seven major card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) was 64.032 million. This is 2.551 million cards (3.8%) fewer than the same period last year.

The total number of debit cards issued has been declining since 2018. According to the Financial Supervisory Service, the number of debit cards reached 111.58 million at the end of 2018, decreased by 640,000 to 110.94 million in 2019, and further declined by 870,000 to 110.07 million last year. Coincidentally, the timing when debit card issuance began to decline coincides with the surge in simple payment users.

The card industry analyzes that as COVID-19 prolongs, non-face-to-face payments have rapidly increased, and big tech simple payment services are replacing debit cards. In fact, the simple payment market is growing rapidly. According to the Bank of Korea, the average daily simple payment amount last year was 449.2 billion KRW, a 41.6% increase from the previous year. Especially, electronic financial operators such as Kakao Pay and Naver Financial accounted for the highest share at 45.7% of usage amount.

Recently, Naver Pay, which announced its Q2 performance, achieved a payment amount of 9.1 trillion KRW, a 47% growth compared to the previous year. The balance of prepaid recharge funds for big tech companies’ simple payment and remittance services is also increasing. As of the end of June, the prepaid recharge balances of Kakao Pay and Naver Pay were 335.1 billion KRW and 68.9 billion KRW, respectively. Compared to the end of March, Naver Pay increased by 23.3%, and Kakao Pay by 4.4%.

Will Simple Payments Encroach on the Debit Card Market?

The card industry is concerned that simple payments may gradually encroach on the debit card market in the long term. The risk of losing future potential customers, who were attracted through debit cards, to big tech companies is increasing. The number of teenagers receiving pocket money through pay services instead of debit cards is already rising, and big tech companies are also launching financial services exclusively for teenagers. Especially, Generation Z is familiar with big tech and tends to exhibit a strong 'lock-in effect,' maintaining the financial services they initially choose. A recent survey conducted by the Korea Fintech Industry Association showed that 9 out of 10 MZ generation respondents use fintech platforms when making simple payments.

An industry insider said, "In the payment market, debit cards and simple payments can be seen as substitutes. If debit cards continue to decline, card companies will have fewer touchpoints to secure future customers," expressing concern.

Experts also evaluate that card companies’ position in the payment market is threatened by big tech. Yeo Yoon-ki, senior researcher at Korea Credit Rating, said, "In the short term, simple payment providers will not replace credit card companies to dominate the payment market," but added, "As the influence of simple payment providers strengthens in the future, competition for leadership will intensify, and securing loyal customers will become important."

This content was produced with the assistance of AI translation services.