Credit cards are the most preferred payment choice in South Korea, worth nearly 80% of total card payments value in 2022
As consumer spending in South Korea recovers from the COVID-19 pandemic, the credit card payments market is expected to grow at a compound annual growth rate (CAGR) of 4.8% between 2022–2026. According to the forecast of GlobalData, a leading data and analytics company, it will reach KRW1,060.5 trillion ($890.9 billion) in 2026.
Although credit card transaction value declined by 0.1% nationwide in 2020, the market registered a 9.9% surge in 2021, fuelled by economic recovery and government initiatives to boost consumer spending.
For instance, the Win-Win Consumption Subsidy program allowed cardholders to receive 10% cashback if their monthly credit/debit card usage surpassed their previous average monthly usage by 3%. The initiative lasted from October 2021 to June 2022. Besides, the government introduced additional tax benefits for consumers who increased credit card spending by 5% in 2021 compared to 2020.
Today, credit cards are the most preferred payment choice in South Korea.
What hampers growth?
At the same time, the Korean credit card market still faces a number of challenges. Those include global geopolitical risks and inflation. Factors like these decrease consumer confidence and lower borrowing rates.
To tackle surging inflation, the central bank of South Korea increased its benchmark interest rate from 2.25% to 2.50% in August 2022. The rate had a further hike up to 3% in October 2022. Rising interest rates will increase borrowing costs on credit cards and affect spending in the near term.
In addition, the economic crisis calls for cutting expenses. Choosing cash over credit cards is one of the spending habits that help people better control their finances. Therefore, the growth of credit card payments will be muted in the next four years.