Emerging Opportunities in South Korea's Cards and Payments Industry

Emerging Opportunities in South Korea’s Cards and Payments Industry Market Size, Trends and Drivers, Strategies, Products and Competitive Landscape

Product Code: VR0885MR Published Date: January 2013

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TABLE OF CONTENTS

TABLE OF CONTENTS 1 Executive Summary ...... 7 2 Market Attractiveness and Future Prospects of the Cards and Payments Industry ...... 9 3 Analysis of the South Korean Cards and Payments Industry Drivers...... 12 3.1 Macroeconomic Drivers ...... 13 3.1.1 Inflation ...... 13 3.1.2 Central Bank Benchmark Interest Rate...... 14 3.1.3 Unemployment Rate ...... 15 3.2 Consumer Drivers ...... 16 3.2.1 Annual disposable income...... 16 3.2.2 Increasing volume of economically active population...... 17 3.2.3 Urbanization ...... 18 3.3 Infrastructure Drivers ...... 19 3.3.1 USB credit cards ...... 19 3.3.2 Contactless cards ...... 19 3.3.3 Growth of mobile internet penetration ...... 20 3.3.4 Growth of internet penetration...... 21 3.3.5 Growth of POS terminals ...... 22 3.4 Business Drivers ...... 23 3.4.1 Growth of online retail sales ...... 23 3.4.2 Virtual stores at subway stations ...... 24 3.4.3 Transportation cards ...... 24 3.4.4 Growth of retail sales ...... 25 3.4.5 Introduction of digital gift cards ...... 25 3.5 Card Fraud Statistics ...... 26 3.6 Regulatory Framework ...... 27 4 Emerging Consumer Attitudes and Trends...... 30 4.1 Market Segmentation and Targeting ...... 30 4.2 Consumer Preference ...... 34 4.2.1 Price ...... 34 4.2.2 Convenience ...... 34 4.2.3 Value-added service ...... 34 4.2.4 Rewards ...... 35 4.2.5 Security...... 35 4.3 Online Buying Behaviour ...... 36 4.3.1 Internet infrastructure and users in South Korea ...... 36 4.3.2 Top e-commerce sites in South Korea...... 39 4.4 Preferred Payment Methods ...... 40 5 Competitive Landscape and Industry Dynamics...... 41 5.1 Industry Share Analysis by Payment Channel ...... 41 5.1.1 Overview of payment channels ...... 41 5.1.2 Credit transfer ...... 42 5.1.3 Direct debit ...... 43

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TABLE OF CONTENTS

5.1.4 Cards...... 44 5.1.5 Checks...... 45 5.2 Debit Cards ...... 46 5.2.1 By competitors...... 46 5.2.2 By scheme ...... 47 5.3 Credit Cards ...... 48 5.3.1 By competitor ...... 48 5.3.2 By scheme ...... 49 5.4 Charge Cards ...... 50 5.4.1 By scheme ...... 50 6 Strategies Adopted by Key Competitors...... 51 6.1 Market Entry Strategies ...... 51 6.1.1 Market entry strategies of non-bank card issuers ...... 52 6.2 Marketing / Product Strategy ...... 53 6.2.1 Debit cards ...... 53 6.2.2 Credit cards...... 54 6.2.3 Prepaid cards ...... 55 6.3 Pricing Strategies ...... 57 7 Market Size and Growth Potential of Payment Card Industry ...... 59 7.1 Market Share Analysis by Type of Card...... 59 7.2 Total Size and Forecast of Card Industry ...... 61 7.2.1 Analysis by number of cards ...... 61 7.2.2 Analysis by transaction value...... 62 7.2.3 Analysis by transaction volume ...... 63 7.3 The Debit Card Category Size and Forecast ...... 64 7.3.1 Analysis by number of cards ...... 64 7.3.2 Analysis by transaction value...... 65 7.3.3 Analysis by transaction volume ...... 66 7.3.4 Other key performance indicators ...... 67 7.4 Prepaid Card Category Size and Forecast...... 69 7.4.1 Number of cards by segment ...... 70 7.4.2 Analysis by transaction value...... 72 7.5 Charge Card Category Size and Forecast ...... 73 7.5.1 Analysis by number of cards ...... 73 7.5.2 Analysis by transaction value...... 74 7.5.3 Analysis by transaction volume ...... 75 7.5.4 Other key performance indicators ...... 76 7.6 Credit Card Category Size and Forecast ...... 77 7.6.1 Analysis by number of cards ...... 77 7.6.2 Analysis by transaction value...... 78 7.6.3 Analysis by transaction volume ...... 79 7.6.4 Other key performance indicators ...... 80 8 Company Profiles, Product and Marketing Strategies ...... 82

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TABLE OF CONTENTS

8.1 Citibank, Korea ...... 82 8.1.1 Strategies...... 82 8.1.2 Debit Cards offered...... 83 8.1.3 Credit Cards offered...... 83 8.2 Woori Bank ...... 85 8.2.1 Strategies...... 85 8.2.2 Debit Cards offered...... 86 8.2.3 Credit Cards offered...... 86 8.3 Daegu Bank (DGB Bank) ...... 88 8.3.1 Strategies...... 88 8.3.2 Debit Cards offered...... 89 8.3.3 Credit Cards offered...... 89 9 Appendix ...... 91 9.1 Methodology...... 91 9.1 Contact Us ...... 91 9.2 About Timetric ...... 91 9.3 Disclaimer ...... 92 9.4 Definitions ...... 93 9.5 Services ...... 94 9.6 Disclaimer ...... 94

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TABLE OF CONTENTS

LIST OF FIGURES Figure 1: Current and Future Prospects of Various Cards in South Korea...... 9 Figure 2: Grow th Potential of the South Korea Cards and Payments Industry by Area of Usage ...... 10 Figure 3: South Korea Cards and Payments Industry Drivers...... 12 Figure 4: Inflation Rate in South Korea (% change of average consumer prices), 2008 - 2017 ...... 13 Figure 5: Unemployment Rate in South Korea (% of Labour Force), 2008−2017 ...... 15 Figure 6: Annual Disposable Income of Population in South Korea (KRW Million), 2008−2017 ...... 16 Figure 7: Economically Active Population in South Korea (Million), 2008−2017 ...... 17 Figure 8: Urban Population in South Korea (Million), 2008−2017 ...... 18 Figure 9: Mobile Internet Penetration in South Korea (%), 2008−2012 ...... 20 Figure 10: Internet Penetration In South Korea (%), 2008−2012 ...... 21 Figure 11: Number of POS Terminals in South Korea (Thousands), 2008−2017...... 22 Figure 12: Value of Online Retail Sales in South Korea (KRW, Million), 2008–2017 ...... 23 Figure 13: Virtual Stores at Subway Stations in South Korea ...... 24 Figure 14: Value of Retail Sales in South Korea (US$, Million), 2008–2012 ...... 25 Figure 15: Country Card Fraud Statistics (KRW Million), 2008–2012 ...... 26 Figure 16: South Korea Cards and Payments Market Segmentation by Card Type...... 30 Figure 17: Cards Targeting Female Customers ...... 31 Figure 18: Cards Targeting Vehicle Owners ...... 32 Figure 19: Cards Targeting Frequent Foreign Travelers ...... 33 Figure 20: Consumer Preferences on Various Types of Cards ...... 34 Figure 21: Online Buying Behaviour in South Korea, 2008−2012 ...... 36 Figure 22: Internet Users by Age in South Korea, 2011 ...... 37 Figure 23: Share of Online Retail Sales in Total Retail Sales, 2010 and 2017...... 38 Figure 24: Share of Different Online Payment Options in South Korea (%), 2011 ...... 40 Figure 25: Share of Different Payment Channels in South Korea (%), 2012...... 42 Figure 26: South Korea – Value and Growth of Credit Transfer (KRW Million), 2008–2012 ...... 42 Figure 27: South Korea – Value and Growth of Direct Debit (KRW Million), 2008–2012 ...... 43 Figure 28: South Korea – Value and Growth of Card Payments (KRW Million), 2008–2012 ...... 44 Figure 29: South Korea – Value and Growth of Check Payments (KRW Million), 2008–2012 ...... 45 Figure 30: South Korea – The Debit Card Category Share by Bank (%), 2011...... 46 Figure 31: South Korea – Debit Card Shares by Scheme (%), 2011 ...... 47 Figure 32: South Korea – Credit Card Shares by Bank (%), 2011 ...... 48 Figure 33: South Korea – Credit Card Shares by Scheme (%), 2011 ...... 49 Figure 34: South Korea – Charge Card Shares by Card Type (%), 2011...... 50 Figure 35: Leading Non-Bank Issuers In Credit Card Category By Number Of Cards (Thousands) ...... 52 Figure 36: Card Marketing Strategies of South Korean Banks...... 53 Figure 37: South Korea’s Cards and Payments Industry by Type of Card (%), 2008–2017 ...... 60 Figure 38: South Korea’s Cards and Payments Industry Size by Volume (Thousands), 2008–2017 ...... 61 Figure 39: South Korea’s Cards and Payments Industry Size by Transaction Value (KRW Million), ...... 62 Figure 40: South Korea’s Cards and Payments Industry Size by Transaction Volume (Million), 2008–2017 ...... 63 Figure 41: South Korea – The Debit Card Category Size (Thousands), 2008–2017...... 64 Figure 42: South Korea – The Debit Card Category Size (KRW Million), 2008–2017 ...... 65 Figure 43: South Korea – The Debit Card Category Size by Transaction Volume (Million), 2008–2017 ...... 66 Figure 44: South Korea – The debit card category Size by Frequency of Use, 2008–2017 ...... 67 Figure 45: Debit Card Usage ATMs and POS Terminals (Thousands), 2008–2017 ...... 68 Figure 46: South Korea – Prepaid Card Category Size (Thousands), 2008–2017 ...... 69 Figure 47: South Korea – Open-Loop Prepaid Cards Segment Size (Thousands), 2008–2017...... 70 Figure 48: South Korea – Closed-Loop Prepaid Cards Segment Size (Thousands), 2008–2017 ...... 71 Figure 49: South Korea – Prepaid Cards Category Size (KRW Million), 2008–2017 ...... 72 Figure 50: South Korea – Charge Card Category Size (Thousands), 2008–2017 ...... 73 Figure 51: South Korea – Charge Card Category Size (KRW Million), 2008–2017...... 74 Figure 52: South Korea – Charge Card Category Size by Transaction Volume (Million), 2008–2017...... 75 Figure 53: South Korea – Charge Card Category Size by Frequency of Use, 2008–2017...... 76 Figure 54: South Korea – Credit Card Category Size by Volume (Thousands), 2008–2017 ...... 77 Figure 55: South Korea – Credit Card Category Size by Transaction Value (KRW Million), 2008–2017 ...... 78 Figure 56: South Korea – Credit Card Category Size by Transaction Volume (Million), 2008–2017...... 79 Figure 57: South Korea – Credit Card Category Size by Frequency of Use, 2008–2017...... 80 Figure 58: South Korea – Credit Card Category Size by Average Transaction Value (KRW), 2008–2017 ...... 81 Figure 59: Citibank Korea, Market Segmentation of Cards Offered ...... 83 Figure 60: Woori Bank Market Segmentation of Cards Offered ...... 86 Figure 61: Daegu Bank Market Segmentation of Cards Offered ...... 89

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TABLE OF CONTENTS

LIST OF TABLES Table 1: Interest Rate Changes of Central Bank of South Korea (%), 2008 – 2012...... 14 Table 2: Revised Loan Loss Reserve Requirements ...... 28 Table 3: South Korea Payment Channels (KRW Million), 2008 and 2012...... 41 Table 4: Total Assets and Net Profits Of Foreign Banks In Korea By Ownership...... 51 Table 5: Daegu Bank Card Fees...... 57 Table 6: Citibank Card Fees ...... 58 Table 7: South Korea’s Cards and Payments Industry by Type of Card (Thousands), 2008–2017...... 59 Table 8: South Korea’s Cards and Payments Industry Size by Volume (Thousands), 2008–2017 ...... 61 Table 9: South Korea’s Cards and Payments Industry Size by Transaction Value (KRW Million),...... 62 Table 10: South Korea’s Cards and Payments Industry Size by Transaction Value (US$ Million), ...... 62 Table 11: South Korea’s Cards and Payments Industry Size by Transaction Volume (Million), ...... 63 Table 13: South Korea – The Debit Card Category Size (KRW Million), 2008–2017 ...... 65 Table 14: South Korea – The Debit Card Category Size (US$ Million), 2008–2017...... 65 Table 15: South Korea – The Debit Card Category Size by Transaction Volume (Million), 2008–2017 ...... 66 Table 16: South Korea – The debit card category Size by Frequency of Use, ...... 67 Table 17: South Korea – Prepaid Card Category Size (Thousands), 2008–2017 ...... 69 Table 18: South Korea – Open-Loop Prepaid Cards Segment Size (Thousands), 2008–2017...... 70 Table 19: South Korea – Closed-Loop Prepaid Cards Segment Size (Thousands), 2008–2017 ...... 71 Table 20: South Korea – Prepaid Cards Category Size (KRW Million), 2008–2017...... 72 Table 21: South Korea – Prepaid Cards Category Size (US$ Million), 2008–2017 ...... 72 Table 22: South Korea – Charge Card Category Size (Thousands), 2008–2017...... 73 Table 23: South Korea – Charge Card Category Size (KRW Million), 2008–2017 ...... 74 Table 24: South Korea – Charge Card Category Size (US$ Million), 2008–2017 ...... 74 Table 25: South Korea – Charge Card Category Size by Transaction Volume (Million), 2008–2017...... 75 Table 26: South Korea – Charge Card Category Size by Frequency of Use, 2008–2017...... 76 Table 27: South Korea – Credit Card Category Size by Volume (Thousands), 2008–2017 ...... 77 Table 28: South Korea – Credit Card Category Size by Transaction Value (KRW Million), 2008–2017...... 78 Table 29: South Korea – Credit Card Category Size by Transaction Value (US$ Million), 2008–2017 ...... 78 Table 30: South Korea – Credit Card Category Size by Transaction Volume (Million), 2008–2017 ...... 79 Table 31: South Korea – Credit Card Category Size by Frequency of Use, 2008–2017 ...... 80 Table 32: South Korea – Credit Card Category Size by Average Transaction Value (KRW), 2008–2017...... 81 Table 33: South Korea – Credit Card Category Size by Average Transaction Value (US$), 2008–2017 ...... 81 Table 34: Cards and Payments Key Definitions ...... 93

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EXECUTIVE SUMMARY

1 Executive Summary

The South Korean cards and payments industry grew at a CAGR of XX.XX% during the review period (2008−2012). The debit card category accounted for a CAGR of XX.XX%. Over the forecast period (2013−2017) the debit card category is expected to grow at a CAGR of XX.XX%. The credit card category occupied the second-largest share during the review period and grew at a CAGR of XX.XX% and is expected to grow at a CAGR of XX.XX% over the forecast period. The growth of credit card category will be facilitated by the emergence of non-bank card issuers. The prepaid card category grew at a CAGR of XX.XX% during the review period and is expected to grow at a CAGR of X% over the forecast period. The charge card category posted a CAGR of -XX.XX% in volume terms in 2011 owing to a declining demand from the corporate segment and is anticipated to decline at a CAGR of -XX.XX% over the forecast period.

Tax reforms to positively impact the debit card category

The South Korean government has taken measures to encourage debit and prepaid cards business. In an attempt to stimulate the use of debit cards, the government passed a tax reform bill in 2012 which increased the tax deduction on debit card and prepaid cash card spending from XX% to XX% of the eligible amount. Tax deduction on credit cards reduced from XX% to XX% of the eligible amount. The move is expected to encourage use of debit and prepaid cards. Growth of online retail sales an important driver of cards and payments industry

Online retail sales increased from KRW XXX.XX trillion (US$XX.X billion) in 2008 to KRW XXX.XX trillion (US$XX billion) in 2012, at a CAGR of XX.XX%. Online retail sales are expected to grow from KRW XX.X trillion (US$XX.X billion) in 2013 to KRW XXX.XX trillion (US$XX.X billion) in 2017, at a CAGR of XX.XX%. The growth of online retail sales is expected to significantly improve the scope of card -based payments over the forecast period. This is because card-based payments accounted for over XX% of the all e-commerce payment methods.

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EXECUTIVE SUMMARY

2 Market Attractiveness and Future Prospects of the Cards and Payments Industry

The South Korean card and payments industry is anticipated to grow at a CAGR of XX.XX% over the forecast period. The highest market share was occupied by the debit card category which accounted for XX.X% and is expected to grow at a CAGR of XX.XX%. The credit card category is expected to grow at a CAGR of XX.XX%, while the prepaid card category exhibits the highest potential for growth and is expected to rise from the XX.X% it registered in 2008 to a projected XX.X% in 2017, at a CAGR of X%. The charge card category is the only category anticipated to post a decline over the forecast period and register a projected CAGR of -XX.XX%. This is because companies and HNWIs who subscribe to charge cards are expected to opt for credit cards. The credit card category is expected to record a decline in terms of market share from XX.X% of the industry in 2012 to XX.X% in 2017. Tax reforms are anticipated to be a key growth driver. The prepaid card category is considered an emerging opportunity. The main drivers of this category are gift and closed-loop store cards. Debit cards and credit cards constitute existing opportunities. The main driver of the debit card category will be tax reforms which provide tax deductions on debit card spending worth XX% of the tax eligible amount. Emerging non-bank competitors are expected to contribute to the growth of the credit card category.

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EXECUTIVE SUMMARY

Figure 2: Growth Potential of the South Korea Cards and Payments Industry by Area of Usage

Source: Timetric analysis © Timetric

Rising debt and credit card delinquencies to encourage the use of debit and prepaid cards

As of September 2012, outstanding household debt in South Korea measured KRW XXX.X trillion (US$XXX.XX billion). Customers are attempting to deleverage and this was evident from the decline of comparative merchandize credit in 2012 as compared to 2011. During the first three-quarters of 2011, Merchandize credit measured KRW X.X trillion (US$X.XX billion). Comparatively, during the first-three- quarters of 2012 this reduced to KRWXXX billion (US$XX million). Over the forecast period this tendency is expected to result in a decline in demand for credit cards and an increase in demand for debit or prepaid cards. The number of delinquent credit card borrowers reached XXX,XXX in 2011, recording a XX% rise over the previous year. The rise in credit card debt is expected to result in stricter lending practices by credit card issuers.

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ANALYSIS OF CARDS AND PAYMENTS MARKET DRIVERS

3 Analysis of the South Korean Cards and Payments Industry Drivers

This section details the industry drivers within the South Korean cards and payments industry. The drivers can be categorized as macroeconomic fundamentals, infrastructure, business and consumer drivers.

3.1 Macroeconomic Drivers

Macroeconomic drivers serve as the fundamental factors that contribute to growth of payment card industry. The macroeconomic drivers that are expected to positively influence the payments card industry are GDP growth and inflation. 3.1.1 Inflation

Low inflationary pressure to encourage loose monetary policy by the central bank

The inflationary rate declined from XXX.X% in 2008 to XXX.X% in 2010. Despite rising to X% in 2012, inflation rate is expected to decline and stabilize at around X% over the forecast period. The decline in inflationary pressure is expected to make way for benchmark interest rate reduction by the central bank. The reduction in central bank interest rate is expected to increase liquidity and credit availability in the economy and i s expected to increase retail spending and scope of card based transactions.

3.1.2 Central Bank Benchmark Interest Rate

Low benchmark interest rate to reduce cost of card products and interest on credit card loans

The central bank interest rate of any country is the benchmark interest rate based on which banking products are priced. A low rate of interest is indicative of a loose monetary policy and increases liquidity in the economy. Low interest rates would mean that credit will be available at a cheaper rate. This would increase consumer spending and is expected to increase scope of card-based payments. The central bank of South Korea has maintained benchmark interest rates between XX.XX% and XX.XX% since 2008. The current stance of the central bank is to inject more liquidity into the economy by maintaining the rates low. The rate changes of the central bank since 2008 are shown in the table below:

Table 1: Interest Rate Changes of Central Bank of South Korea (%), 2008 – 2012 Date of Rate Change Percentage

11 October, 2012 XX.XX%

12 July, 2012 XX.XX%

10 June, 2011 XX.XX%

10 March, 2011 XX.XX%

13 January, 2011 XX.XX%

16 November, 2010 XX.XX%

09 July, 2010 XX.XX%

12 February, 2009 XX.XX%

09 January, 2009 XX.XX%

11 December, 2008 XX.XX% Source: Timetric analysis© Timetric

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ANALYSIS OF CARDS AND PAYMENTS MARKET DRIVERS

3.2 Consumer Drivers

The consumer drivers anticipated to aid the growth of the cards and payments industry are annual disposable income, an economically active population and urbanization. 3.2.1 Annual disposable income The population’s annual disposable income valued KRW XXX.XX billion (US$XXX.XX million) in 2008 and grew to KRW XXX.XX billion (US$XXX.XX million) in 2012, at a CAGR of XXX.X%. This figure is expected to increase from KRW XXX.XX billion (US$XXX.XX million) in 2013 to KRW XXX.XX billion (US$XXX.XX million) in 2017, at a CAGR of XXX.X%. Such an increase is indicative of the purchasing power of consumers.

Figure 6: Annual Disposable Income of Population in South Korea (KRW Million), 2008−2017

Source: Timetric analysis © Timetric

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ANALYSIS OF CARDS AND PAYMENTS MARKET DRIVERS

3.3 Infrastructure Drivers South Korean industry has a number of infrastructural drivers that contribute to growth of card payments.

3.3.1 Growth of POS terminals The growth of POS terminals is an important infrastructure driver that increases scope of card-based payments. The number of POS terminals grew from X,XXX in 2008 to X,XXX in 2012, at a CAGR of XX.XX%. The number of POS terminals is expected to grow from X,XXX in 2013 to X,XXX in 2017, at a CAGR of XX.XX%. The installation of POS terminals at retail outlets is expected to increase the potential of card-based payments in South Korea.

Figure 11: Number of POS Terminals in South Korea (Thousands), 2008−2017

Source: Timetric analysis © Timetric

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ANALYSIS OF CARDS AND PAYMENTS MARKET DRIVERS

3.4 Card Fraud Statistics

The instances of card fraud reported at POS terminals was greater than that of those reported at ATMs. The card fraud reported at POS terminals declined from KRW XXX.XX billion in 2008 to KRW XXX.XX billion in 2012, at a CAGR of -XX.XX% while fraud at ATMs was valued KRW XXX.XX million in 2008. In 2012 card fraud declined to KRW XXX.XX million, at a CAGR of -XX.XX%.

Figure 15: Country Card Fraud Statistics (KRW Million), 2008–2012

Source: Timetric analysis © Timetric

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ANALYSIS OF CARDS AND PAYMENTS MARKET DRIVERS

3.5 Regulatory Framework

The credit card category is governed by the financial law of credit business, the specialised law for loan business, authorization guidelines, the enforcement of regulations, consumer protection law, which includes regulations related to business registration, overdue interest, installment transactions and credit information.

The Law of Credit Card, the primary law regulating credit card business was amended in 1987. The amendment allowed credit card business to be divided from a parent company to a separate subsidiary. This amendment resulted in the creation of four mono-line credit companies. These companies included LG, Kookmin, Korean Exchange Bank Credit Service and Samsung.

Following the Asian Financial crisis, the South Korean government issued the Specialized Credit Financial Business Act of South Korea, which lays down the rules and regulations related to conducting credit card business. The act was passed by the government of Republic of Korea on August 28, 1997. 21 amendments have been effected to the act since then. Article three of the act defines the requirements related to the license or registration of business. The requirements are as follows:

An organization or person who intends to engage in credit card business should receive a license from the Financial Services Commission. The persons or businesses eligible to apply for licenses are restricted to those authorized by a Presidential Decree to combine a credit card business with other business conducted.

According to Article four of the act, a person who intends to apply for a license to start a credit card business should submit the following documents to the Financial Services Commission:

The business name and location details of the office or prime area of operation. Details of the capital stock of the company, name and positions of contributors and details of their shareholdings. Names of the board of directors and other officers of the company. Details of the business planned. Details of other businesses carried out by the business or person if the business or person is a concurrent loan service provider.

Income tax return on card spending

In order to encourage the use of payment cards, the South Korean government offers income tax deductions on card-based spending. The maximum deduction amount for credit card-based spending is KRW3 million (US$X.XXX). The eligible amount for tax deduction equals that which exceeds XX% of the gross income of a resident. The deductible income tax amounts are:

XX% of the eligible amount for credit card spending. XX% of the eligible amount for debit card and prepaid card spending.

However, the tax reform bill passed in August, 2012 lowered the tax deduction on credit card spending from XX% to XX% of the eligible amount, and tax deduction on debit card spending was increased from XX% to XX% of the eligible amount.

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EMERGING CONSUMER ATTITUDES AND TRENDS

4 Emerging Consumer Attitudes and Trends

This chapter details the attitudes and trends of South Korean customers with a focus on the market segmentation schemes of banks and the sub-segments they target. The chapter also discusses the various factors taken into account by customers while choosing a card with a focus on online purchasing behavior and the preferred payment methods of customers. 4.1 Market Segmentation and Targeting

The traditional methodology followed by banks is to target retail and corporate cust omers. However they also target specific customer segments.

4.2 Consumer Preference

Consumers consider various factors before making the decision to purchase a card. Factors include price, convenience, value-added services, rewards and security. The priority level attributed by consumers to each of these factors differs according to customer segment. The following chart represents the preferences of South Korean consumers with respect to their choice of card products:

Figure 20: Consumer Preferences on Various Types of Cards

Source: Timetric analysis © Timetric

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COMPETITIVE LANDSCAPE AND INDUSTRY DYNAMICS

5 Competitive Landscape and Industry Dynamics

As of 2011 there were 56 banks in South Korea. Of these, 38 were foreign. The largest competitors in the debit card category were KB Kokomin Card, Shinhan Card, Woori Financial, Hana SK Card, KEB, SC First Bank, Hyundai Card and Citibank. For the credit card category such firms included Shinhan Card, Samsung Card, Nonghyup Bank, KB Kokomin Card, Hyundai Card, Lotte Card, Woori Financial, Hana K Card, KEB and Citibank. The leading scheme providers in the cards and payments industry were Visa, MasterCard and American Express. This section discusses the payment channels and market shares of leading competitors. 5.1 Industry Share Analysis by Payment Channel

This section explores the market shares of various payment channels in South Korea. It also details how these channels have grown during the review period. The most popular payment channels were credit transfer and checks. 5.1.1 Overview of payment channels Credit transfer was the most popular payment channel in 2008. Credit transfer occupied XX.X% of the overall payment channel. Check payment was the second-most popular payment channel and had a market share of XX.X% in 2008. Cards constituted XXX.X% and direct debit had a market share of XXX.X% in the same year. The share of credit transfers increased to XX.X% in 2012. The share of card-based payments remained at XXX.X% and the share of check payments declined to XX.X% in 2012.

Table 3: South Korea Payment Channels (KRW Million), 2008 and 2012 Payment Channels KRW Million, 2008 Market Share (%), 2008 KRW Million, 2012 Market Share (%), 2012

Credit Transfer XXXXXXXXX.X XX.X% XXXXXXXXX.X XX.X% Direct Debit XXXXXXXXX.X XXX.X% XXXXXXXXX.X XXX.X% Cards Payments XXXXXXXXX.X XXX.X% XXXXXXXXX.X XXX.X% Check Payment XXXXXXXXX.X XX.X% XXXXXXXXX.X XX.X% Total XXXXXXXXX.X XXX.X% XXXXXXXXX.X XXX.X% Source: Timetric analysis © Timetric

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COMPETITIVE LANDSCAPE AND INDUSTRY DYNAMICS

5.1.2 Credit transfer

Credit transfer was the most popular payment channel during the review period and accounted for a market share of XX.X% of the overall payment channel in 2008. The share of credit transfer increased to XX.X% in 2012. The total value of credit transfers in 2008 was KRW X.X trillion (US$X.X billion). The value of credit transfers grew to KKRW XX.X(US$XX.X billion) in 2012.

Figure 26: South Korea – Value and Growth of Credit Transfer (KRW Million), 2008 –2012

Source: Timetric analysis © Timetric

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STRATEGIES ADOPTED BY KEY PLAYERS

6 Strategies Adopted by Key Competitors

This section details the marketing entry strategies adopted by competitors in the cards and payments industry and also discusses the marketing strategies adopted by competitors to promote various card segments. 6.1 Market Entry Strategies

In the after math of the Asian Financial Crisis, the banking sector, burdened with non -performing loans, was subject to two phases of restructuring. The first, between 1998−2000, was to recapitalize the banks by injecting public funds and during the second phase, beginning from 2001, mergers were encouraged to consolidate the sector. The banks were re-privatized and this made way for the formation of financial conglomerates.

South Korea had an influx of foreign banks following the Liberalization of Trade in Financial Services agreement in December, 1997. This process removed various barriers to entry for foreign banks and resulted in a flow of foreign competitors. As of 2008 there were 56 banking institutions in South Korea. Of these, 13 were domestic banking institutions, fi ve were special purpose banks and 38 were foreign banks. The number of foreign banks as of 2011 was 37. These banks had around 72 branches or offices. European banks were the largest competitors in South Korea, and owned XX.X% of the overall assets of foreign competitors in 2010. However, Asian banks reported the highest net profits in 2011. The leading foreign competitors include Bank of America. Wells Fargo, Bank of Tokyo-Mitsubishi UFJ, Citibank Korea, Deutsche Bank, The Hong Kong and Shanghai Banking Corporation, JP Morgan Chase, Mizhuo Corporate Bank, Royal Bank of Scotland and SC First Bank.

Table 4: Total Assets and Net Profits Of Foreign Banks In Korea By Ownership

Countries Parameters 2008 2009 2010 2011 Net profits X,XXX X,XXX X,XXX X,XXX America Assets XX.X XX.X XX.X Net profits XX,XXX XX,XXX X,XXX X,XXX Europe Assets XXX.X XXX XXX.X

Net profits X,XXX X,XXX X,XXX X,XXX Asia Assets XX.X XX.X XX Net profits XXX XXX XXX XXX Australia-Africa Assets X.X X.X X.X Net profits XX,XXX XX,XXX XX,XXX XX,XXX Total Assets XXX.X.X XXX.X XXX.X Source: Timetric analysis © Timetric

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STRATEGIES ADOPTED BY KEY PLAYERS

6.1.1 Market entry strategies of non-bank card issuers

Non-bank issuers occupy a significant share of the credit card category . The popular non-bank issuers in the category include Samsung Card, Hundai Card and Lotte Card. Samsung Card occupied the largest share, XX%, among non-bank issuers. Hundai Card occupied XX% of the market share and Lotte card occupied X%.

Figure 35: Leading Non-Bank Issuers In Credit Card Category By Number Of Cards (Thousands)

Source: Timetric analysis © Timetric

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MARKET SIZE AND GROWTH POTENTIAL OF PAYMENT CARD INDUSTRY

7 Market Size and Growth Potential of Payment Card Industry

This section details the market size of South Korea’s cards and payments industry and the market size of various card categories, which are analyzed in terms of volume, transaction value and transaction volume. Other parameters such as use of cards at ATMs and POSs, average transaction value and the frequency of transactions are also discussed. This section also provides an insight into the future growth prospects of various categories within the industry. 7.1 Market Share Analysis by Type of Card

All card categories, with the exception of charge cards recorded positive growth both during the review and forecast periods. The industry grew at a CAGR of XX.XX% during the review period and is expected to grow at a CAGR of XX.XX% over the forecast period. The debit card category occupied XX.X% of the overall cards and payments industry in 2008. In 2012, the share decreased to XX.X%. The debit card category grew at a CAGR of XX.XX% during the review period and the cumulative average growth of the debit card category is expected to decline to XX.XX% over the forecast period.

The credit card category constituted XX.X% of the overall cards and payments industry in 2008. The share of the category increased to XX.X% in 2012, at a CAGR of XX.XX%. Over the forecast period the card category is expected to grow at a CAGR of XX.XX%. The prepaid card category constituted XX.X% of the overall card industry in 2008 and increased to XX.X% in 2012 at a CAGR of XX.XX%. The prepaid card category is expected to grow at a CAGR of XXX.X over the forecast period. Charge cards constituted XXX.X% of the industry in 2008 and declined to XXX.X% in 2012 at a CAGR of -XX.XX%. The charge card category is expected to decline at a CAGR of -XX.XX% over the forecast period.

Table 7: South Korea’s Cards and Payments Industry by Type of Card (Thousands), 2008–2017

Types of Card: 2008 2012 2013 2017 CAGR 2008–2012 CAGR 2013–2017

Debit card XXX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XX.XX% XX.XX% Credit card XX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XX.XX% XX.XX% Prepaid card XX,XXX.X XX,XXX.X XX,XXX.X XX,XXX.X XX.XX% XX.XX% Charge card X,XXX.X XXX.X XXX.X XXX.X -XX.XX% -XX.XX% Total XXX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XX.XX% XX.XX% Source: Timetric analysis © Timetric

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MARKET SIZE AND GROWTH POTENTIAL OF PAYMENT CARD INDUSTRY

7.2 Total Size and Forecast of Card Industry

The industry grew at respective CAGRs of XX.XX% and XX.XX% in volume and value terms during the review period.

7.2.1 Analysis by number of cards

In volume terms the industry grew from XXX.X million cards in circulation in 2008 to XXX.X million in 2012, at a CAGR of XX.XX%. The total number of cards in circulation is expected to increase from XXX.X million in 2013 to XXX.X million in 2017, at a CAGR of XX.XX% over the forecast period.

Table 8: South Korea’s Cards and Payments Industry Size by Volume (Thousands), 2008–2017

2008 2009 2010 2011 2012 CAGR 2008–2012 Total Cards – Historical XXX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XX.XX% 2013 2014 2015 2016 2017 CAGR 2013–2017 Total Cards – Forecast XXX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XXX,XXX.X XX.XX% Source: Timetric analysis © Timetric

Figure 38: South Korea’s Cards and Payments Industry Size by Volume (Thousands), 2008 –2017

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COMPANY PROFILE, PRODUCTS AND MARKETING STRATEGIES

8 Company Profiles, Product and Marketing Strategies

8.1 Citibank, Korea

Citibank Korea is the subsidiary of Citigroup, South Korea. Citibank established Citibank Korea by acquiring KorAm Bank and by merging the bank with its Seoul branch. It is the seventh-largest bank in South Korea with a market share of XXX.X%, based on share of deposits of all commercial banks. The bank earned a net income of KRW XX.X billion (US$XXX.XX million) in the first quarter of 2012. 8.1.1 Strategies Partnering with retail outlets to offer discounts to cardholders

An important marketing strategy employed by Citibank is to partner with department stores and retail outlets to offer discounts to customers. The bank partnered with Shinsegae Corporation to offer discounts on purchases at Shinsegae mall and Shinsegae department stores. For example, the bank offers discounts of X−X% on purchases. The cardholder can also access free car parking facilities and can make use of free installment payment facility for purchases made at Shinsegae stores. The bank has also partnered with Hundai, Galleria, AK Plaza and Debec and retail outlets such as Outback Steak House, Seafood Ocean, Fisher’s Market and China factory.

Providing discounts to vehicle owners for fuel purchases

The bank offers a number of cards targeting vehicle owners and issues the Shinsegae Citicard Quattro Gas Version and Citi Revolving Visa card which provides X% discounts on fuel purchases. Reward points to encourage card purchases

The bank offers reward points to customers to encourage card -based payments. Reward points are offered on all card types. For example, the Citi Premier Miles Card provides cardholders with one Citi Premier Mile point for every KRW X,XXX (US$X.X) worth of retail purchases and XX,XXX Citi Premier Miles bonus points for payments worth more than KRW XX million (US$XX,XXX). The card holder is offered XX,XXX Citi Premier Miles Bonus if the annual spending on card exceeds KRW XXX million (US$XX,XXX).

Priority passes to corporate and HNW customers at international airports The bank offers priority passes to its corporate and HNW customers. For instance, the Citi Premier Miles card, which targets frequent travelers, offers priority entry passes to airport lounges across the globe. The card holder can access 600 airport lounges and those whose spending exceeds KRW XX million (US$XX,XXX) can request priority a pass for one family member. The cardholder can also invite a guest at the cost of US$ XX. The cardholder can access free valet parking services at Incheon International Airport and gain free access to selected cafes at Incheon International Airport.

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APPENDIX

9 Appendix

9.1 Methodology

Timetric’s dedicated research and analysis teams consist of experienced professionals with an industry background in marketing, market research, consulting and advanced statistical expertise.

Timetric adheres to the Codes of Practice of the Market Research Society (www.mrs.org.uk) and the Society of Competitive Intelligence Professionals (www.scip.org).

All Timetric databases are continuously updated and revised.

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APPENDIX

Economic Re search Services Timetric’s economic research services are founded on three key goals:

1. To provide the strongest base data: The most accurate data The most timely and frequently updated data sets The best data curation methodologies and standardizations Unique data sets and forward-looking indicators Industry-specific, premium data sets

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The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Timetric delivers will be based on information gathered in good faith from both primary and secondary sources, the accuracy of which Timetric is not always in a position to guarantee. Timetric will accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect.

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APPENDIX

9.4 Definitions

Table 34: Cards and Payments Key Definitions

Categories Description Gift cards are suitable for a variety of purposes such as at key religious festivals or specific Gift cards anniversaries such as marriages or birthdays. The gift card can also be used by corporations as gifts to employees, vendors or clients.

This card category is specifically designed to replace the country’s inefficient paper voucher system. It Meal cards also offers employees a meal allow ance and eliminates the logistical problems associated with the procurement, stock-keeping and distribution of paper-based meal vouchers.

These cards are used to pay salaries to employees by eliminating the need to put funds into a specific Payroll cards bank account. The payroll card is loaded with the amount of salary or reimbursement clients are due, which they can spend using the card.

Travel currency card This card targets international travelers and is available in multiple currencies.

Remittance card This card targets those who receive remittances from abroad.

Multi-purpose prepaid cash Multi-purpose cards can be used to purchase various goods and services from affiliated merchants. card

Average transaction value The average value of transactions made through each card annually.

Frequency of use The the average number of transactions made using different cards in a given year.

Turnover per card Represents the value of transactions generated by various cards in a year.

Online spending through Reflects the value of transactions made though mobile payment platforms. mobile

Card penetration (per '000) The average number of card types available per thousand people.

Contactless transactions as Reflects the total number of NFC-enabled cards in circulation. well as NFC-enabled cards Source: Timetric analysis © Timetric

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APPENDIX

9.5 Services

Timetric offers a range of economic, industry and consulting services: Economic Intelligence Services Timetric leverages its extensive data assets, through the use of innovative technologies, in order to produce thought-provoking analytical content delivered in the form of economic briefing services. We also enable you to access the data components that power this analysis, so that you can understand further, dig deeper or create your own assessments.

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Timetric. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Timetric delivers will be based on information gathered in good faith from both primary and secondary sources, the accuracy of which Timetric is not always in a position to guarantee. Timetric will accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect.

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