The Korean Card Trick: Picking One

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By CHOE SANG-HUN
Published: January 1, 2008

SEOUL, South Korea — Whenever Park Kyung Jin goes shopping, she methodically reviews which of her many credit cards to pull out. Not that Ms. Park, a 28-year-old office worker, is a shopaholic; rather, like millions of other South Koreans, she knows this is a way to trim costs.
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Choe Sang-Hun/International Herald Tribune

Lee Ji Won, 29, with her credit cards and membership cards, which provide discounts but are not used for payment.

“You feel like a loser if you pay in cash,” she said, noting the generous discounts South Korea’s credit card companies offer as incentives.

In part because of a government campaign to fight corruption in the late 1990s, South Korea has become one of the world’s most credit-card-friendly countries. The government encouraged consumers to use credit cards and threatened tax audits of enterprises that refused to accept them as part of its effort to fight the all-too-free flow of cash in the underground economy. It even gives income tax rebates to people who report their annual expenditures using credit cards.

As a result, in 2006 nearly half the 454 trillion won, or $491 billion, in private consumption in South Korea was settled with credit cards, one of the highest ratios in the world, government officials said.

Although South Korea ranked 34th in per capita income among countries in 2005, it ranked fifth in per capita credit card spending, according to the Bank of Korea, the country’s central bank.

Paying electronically is easy in this technology-aware, densely populated country. In 2005, for every million people, there were 403,000 electronic cash registers that allowed them to pay with credit and debit cards, Bank of Korea data show. In Japan, there were 10,765 such terminals for every million people. South Koreans can pay for virtually anything with credit cards: parking tickets, highway tolls, pizza deliveries or a 2,000-won bill at a street-corner noodle shop.

With cards everywhere, the challenge to vendors is to stand out to attract consumers. Gasoline stations, bookstores, airlines, shopping malls, telephone companies, bakeries, amusement parks, KFC outlets — even hospitals — give discounts if a customer presents the right card.

The incentives are so many and so diverse that, Ms. Park said, “Here a credit card is not just a tool of payment, it’s also a way of saving money.”

For instance, when Ms. Park wanted to buy a knitwear shirt for her husband, she visited a department store run by the Hyundai conglomerate, because her Hyundai card gave her a 5 percent discount and she could pay in interest-free installments over three months.

She often buys groceries at a store owned by the Lotte conglomerate, where her Lotte card gives her a 5 percent discount.

Elsewhere, she uses her Citibank card, which gives her two free miles on the South Korean airline Asiana for every 1,500 won she spends. With 30,000 miles, she hopes to get a round-trip ticket to Japan.

Card companies also give their cardholders “point cash,” a small percentage of each settlement. This point money, saved in the cardholder’s account, can be spent like cash. People use it to buy movie tickets, pay for gasoline, make political contributions or donate to the homeless.

Card companies can deposit the point money in the customer’s personal bank account, as happened to Ms. Park in October, when she received 50,000 won of point money saved on subway and bus fares she had paid by credit card.

For both card companies and retailers, point money has become an essential tool for attracting customers. For each credit card, there are up to two million shops where the consumer can use the card and get point cash.

“In South Korea, for virtually any payment you make at retail shops, there is a way you can save money if you use a credit card,” said Jeong Sang Ho, a vice president at Hyundai Card, which has six million cardholders and controls 13 percent of the country’s credit settlement market. “South Korea is a tough place to be a card company. You have to keep coming up with creative new incentives to stay in competition.

“But,” he added, “it’s the best place to be a cardholder.”

Hyundai Card, a joint venture of the South Korean automotive giant Hyundai Motor and General Electric of the United States, plans to expand into the United States, China and India. It hopes that some of the business models developed for the picky South Korean retail market — where some of the most competitive global brands, like Wal-Mart, Nokia, Nestlé and Google, have struggled or pulled out — will help.

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