Courtesy of the Bank of Korea
SEOUL — South Korea’s central bank on Tuesday unveiled plans to create an equivalent to China’s Alipay or WeChat Pay by the first half of 2019, in a move to cut “social costs” of consumers and merchants caused by card networks here.
The new infrastructure for smartphone-based mobile wallet service will allow an online payment to be settled between customers and vendors without intermediaries like a card network, where card companies, payment gateway providers and virtual account number payment solution providers are involved.
Using a mobile app, cash from the user’s bank account will be withdrawn and sent to the merchant via scanning a QR code, while a user authentication system using passwords or fingerprints of consumers will be attached, officials of the Bank of Korea said in a press conference.
“A multilayered process for payment and settlement will be minimized, so that commission fees can be lowered,” said Lee Jong-yeol, director of the e-finance division at the BOK, adding the commission fee from merchants is projected to be lower than 1 percent.
The BOK plans to come up with a set of technology standards for the mobile wallet service, also known as a third-party online payment service, by September 2018.
The launch is slated in the first half of next year, while commercial banks in Korea that are willing to partner with the central bank will embark on the system development starting November 2018.
If implemented as planned, the system will be an alternative to the financial customers and merchants of the nation where cards have become a major means of payment.
As of 2017, the volume of credit card payment took up 75.4 percent of all consumer spending in Korea, showed data by the BOK. The figure includes transactions on some Korean digital wallet services like Samsung Pay, through which users load credit card information on smartphones.
In the meantime, the average commission fee for credit card payment imposed on merchants comes to 2.1 percent of a total transaction, according to Korea’s Credit Finance Association.
The credit card networks’ “convoluted settlement system” has led to “higher social costs,” said Lee Byoung-mok, head of payment and settlement systems department at the e-finance planning team of the BOK.
“Heavy use of credit cards (in Korea) has caused inefficiencies in a payment process, so that the rise in the social cost will lead to a decrease in social welfare,” he said.
“We are offering an alternative choice to consumers and vendors for the sake of their convenience.”
The BOK urged Korean payment gateway providers and virtual account number service providers to brace for a long-term change in the environment.
The system would be able to underpin various ongoing autonomous government-backed projects for online transaction system, the BOK officials also said.