South Korea Is an eCommerce Eden for Those Fluent in Local Payments

Among the most mobile-centric nations on earth, South Korea is a ripe opportunity for eCommerce merchants provided they learn the terrain — namely, payments localization.

With the world’s 10th-highest gross domestic product (GDP) and roughly 93% smartphone penetration in a population of 50 million people, it’s a connected economy playground for merchants with friends in-country and third-party partners that can help navigate the unique aspects of selling in this part of Asia.

According to Worldline Global Head of Digital Goods and Services Michael Bilotta, the eCommerce market in South Korea clocks in at $96 billion annually “and 65% of that is transacted on mobile.”

Payments today are a mix favoring digital and cards, with Bilotta telling PYMNTS’ Karen Webster that 20% of eCommerce transactions are done via eWallets — Naver Pay is a major local wallet with about 75% of the market, he said — and “the other 80% is cards. Forty percent of those co-brand with Visa and Mastercard, and the other 40% are South Korea-based issuers.”

Calling subscription-based payments “super prevalent in South Korea,” Bilotta said “the market isn’t developing by leaps and bounds like we might see in Latin America, for example. But when I look at the space and I look at the opportunity that merchants have to expand and capture share of wallet, it really comes down to being able to offer those local payment methods.”

“If you just go into South Korea with Visa and Mastercard, there’s 60% of the market that you’re just not capturing,” he added. “That makes it quite difficult to build up critical mass in the country.”

See also: Travel Recovery in South Korea Makes Strong Case for Localized Payments

‘Obliterating’ Old Ways

eCommerce merchants are right to be sizing up South Korea for expansion, and while it’s prime territory for cross-border growth, playing to local preferences is nonnegotiable.

“If you’re not offering those local payment methods, [but] then one of your competitors [is], or even if somebody that’s in a slightly different space is also offering them, the customer is going to gravitate toward the options that will allow them to utilize those payment methods,” Bilotta said.

He noted a statistic that up to half of consumers, depending on the region, will abandon a shopping cart if they don’t immediately see their local currency.

“If, as a merchant, you’re not set up to utilize local currency from a treasury and back-office perspective, you can’t price your products and services in local currency,” he said. “You are also eliminating the ability to access local methods of payment, which is almost insurmountable.”

Companies like Worldline are working to change the old economics of merchants expanding into new and foreign markets by taking the digital path end-to-end, steeped in localization.

Recalling the traditional path of setting up an office and hiring local employees, Bilotta told Webster: “All of these things are … the old model that we’re trying to kind of obliterate as the standard. The solutions that Worldwide tries to come up with in these expanding markets, South Korea being a pinnacle of them, is the ability to enter markets without the need of having a local entity, while still complying with all the local legislation” and other requirements.

Read also: Localized Payments Connect S. Korea’s eComm Sellers to the World

From Fraud to Finance, Know Your Stuff

Fraud risk is typically heightened when entering foreign markets, and Worldline’s recent partnership with Microsoft Dynamics 365 Fraud Protection is a major step to secure its growing number of users and use cases in South Korea. It’s the first payment service provider to do so.

“With Microsoft and their fraud tool, it’s all machine learning based,” he said. “The real driver of the solution centers around all the data that [Microsoft has] and the machine learning algorithm being able to constantly monitor transaction history across the entire portfolio and for specific merchants to make sure that they can preempt fraudulent behavior.”

Armed with powerful new fraud fighting tools and a heads-up on criticality of local payment options, companies expanding into South Korea still must prove the return on investment (ROI) justifies the expense.

“The first thing that you would look at is, What’s my success rate? What’s the authorization rate of the payment that I’m going to be putting through? Going local in South Korea based on the data that we have will offer between a 4% and 6% increase in authorization rate right off the top,” Bilotta said.

“Then you have access to the new cards, and you say, ‘OK, that’s 60% of the market that opens up.’ We project what that means in terms of what our penetration rate will be initially, and what it can grow into.”

Using local payments helps with ROI as cross-border fees are eliminated.

Worldline provides due diligence insights “that our merchants wouldn’t have access to,” he said. “They don’t have the data from Visa, they don’t know what the increase in authorization rate would be. The synopsis [is that] you reduce your costs as much as possible based on what you are allowed to do from a tax and compliance perspective,” he explained.

“Going local into a market where you know you have customers, or you want to grow, is really the only way to do it,” he said, adding that new markets are “based around local payments. It’s not 2010 where you just slap cross-border Visa or Mastercard up and say, ‘I’m going around the world.’ Not going to work. There’s too much competition with eCommerce these days.”