By Choe Sang-Hun
International Herald Tribune
Whenever Park Kyung Jin goes shopping, she methodically reviews which of her many credit cards to pull out. Not that the 28-year-old office worker is a shopaholic; rather, like millions of other South Koreans, she knows this is an easy way to trim costs.
"You feel like a loser if you pay in cash," she said, noting the generous discounts South Korea's intensively competitive credit card companies offer as incentives to use their products.
Thanks to what began in the late 1990s as a government campaign to fight corruption, South Korea has become one of the world's most credit card-friendly countries. As part of its effort to fight the all-too-free flow of cash in the underground economy, the government encouraged consumers to use credit cards and threatened tax audits of enterprises that refused to accept them. It even gives income tax rebates to people who report their annual expenditures using credit cards.
The result is that last year 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 just 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-savvy, 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. This means South Koreans can pay for virtually anything with credit cards: parking tickets, highway tolls, pizza deliveries, even 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 type of card.
The incentives are so many and so diverse that, Park said, "Here a credit card is not just a tool of payment, it's also a way of saving money."
For instance, when 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.
On her way home from work, 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 also deposit the point money in the customer's personal bank account, as happened to 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 through partnerships. 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 between 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 - a graveyard for some of the most competitive global brands, like Wal-Mart, Nokia, Nestlé and Google - will help.
In one business model Hyundai Card is proud of, it lends point money, usually 500,000 won, for the purchase of a Hyundai car with a Hyundai card. The cardholder must pay the loan within three years using point cash accumulated through other purchases on the card.
"This ensures that the cardholder will continue to use our card," said Kang Byung Kyoo, a Hyundai Card executive.
Other card companies like Samsung and Shinhan make similar loans to people who buy electronics or newlyweds who purchase furniture.
When the South Korean began encouraging credit card use in the late 1990s, card companies established kiosks on the streets and even issued cards to college students, luring them with cash gifts.
In a country with 23 million economically active people, the number of credit cards surged to 105 million in 2002 from 42 million in 1998. The bubble burst a year later, when the number of defaulters soared 41 percent to 3.7 million. Some were driven to suicide.
After huge debt write-offs, mergers and tightening standards for issuing cards, the six leading credit card companies posted a combined 2.2 trillion won in profit last year, recovering from a 7.7 trillion won loss three years earlier.
Now there are an average four credit and other settlement cards for each economically active South Korean, compared with an average five for an American.
With such cards being a principal tool for attracting customers, virtually every retail chain in South Korea is issuing "membership cards," which look like credit cards and offer discounts but are not used for payment. The most popular are membership cards from SK Telecom and KTF, the two main cellphone companies in the country. They give discounts at thousands of restaurants and movie theaters. Increased used of a cellphone yields greater discounts.
So the wallet of Lee Ji Won, a 29-year-old office worker, is crowded with a dozen credit and membership cards, including one from her dermatologist.
"There are so many," she said, "you sometimes really need to study the manuals to figure out which card you should use at which place to get which benefits."