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South Korea: Cash and Digital Payments

Categories : Cash is available to all users, Cash is easy to use, Costs of cash versus costs of electronic payment instruments
September 11, 2023
Tags : Cash, Costs of payments, Digital payments, Financial inclusion, South Korea
Cash is the second most used payment instrument in South Korea. Digital payments proliferate, leaving vulnerable groups behind.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – Mexico and South America, University of Oxford

This post is also available in: Spanish

South Korea: Cash in Circulation

In South Korea, currency in circulation has grown since December 2001 (Graph 1). Cash in circulation grew more rapidly during the early onset of the Covid-19 pandemic, as it grew at the monthly rate of 5.7% in February 2020, according to Bank of Korea (BOK) statistics. Currency in circulation grew at yearly rates of over 10% from then until September 2022; then, its pace decelerated.

Graph 1. South Korea: Currency in Circulation, January 2010-June 2023 (Billions of Won, Seasonally Adjusted Averages)

Source: Bank of Korea (2023).

In December 2016, the BOK announced it would eliminate small-denomination coins due to high minting costs ($40 million annually). “If Korea goes coinless, it is good for both customers and sellers as sellers will not need to prepare enough coins for their business,” said Lee Hyo-chan, head of research at the Credit Finance Institute in Seoul.

The Payment Mix

Cash is the second most used payment method in South Korea, after credit cards (see Graph 2). According to a Bank of Korea (BOK) survey, the share of cash among all payment instruments fell from 26.4% in 2019 to 21.6% in 2021 by volume of transactions and from 17.4% to 14.6% by value (BOK 2023: 13).

The share of credit cards in all transactions remained stable (43%) by volume between 2019 and 2021 but declined from 53.8% to 49.5% by value as mobile cards’ usage expanded during the Covid-19 pandemic. In 2021, credit cards accounted for 78.7% of all card payments, and debit cards accounted for 21.3%.

Graph 2. South Korea: Usage of payment instruments, 2019-2021

A. Volume

B. Value

Source: BOK (2023: 14).

The South Korean government promoted credit card payments to stimulate economic activity and broaden the tax base after the 1997 Asian financial crisis. (Bae 2022: 110). Despite high inflation after the Covid-19 pandemic and Russia’s war on Ukraine, the proliferation of digital payments has made it easier for Korean consumers to overspend.

“South Koreans in their 20s and 30s have been borrowing larger amounts of money and as a result, falling into more debt. The larger amount of credit card debt and increasing rates indicates South Koreans are spending more than they think they are, which means they will be put in an even costlier debt.” – Chyung Eun-ju and Joel Cho, The Korea Times.

Some restaurants, cafés, and retailers have stopped accepting cash payments. Concerns remain about the growth of non-cash transactions as digitally-excluded groups (such as seniors)

South Korea: Financial Inclusion

According to the World Bank’s Global Financial Inclusion Database, in 2021

Seoul: Public Transit and Digital Payments

“Bus companies had grappled with the high management costs of maintaining the fare boxes (inside buses) while cash is dying out” – A Seoul city official.

In Seoul, 1,876 city buses on 108 routes (25% of the total) stopped accepting cash payments in March after a five-month pilot on 171 buses serving eight routes in 2021. Some buses in Daejeon, Incheon, and Sejong have also gone cashless. Commuters must pay with credit cards, pre-paid T-money transportation cards, or mobile apps. The bus system only offers free transfers between buses when digital payments are used.

The Seoul city government said the share of passengers who paid with cash dropped from 1.25% in 2018 to 0.6% in 2022, with only 20,000 commuters among 3.2 million daily bus users. Cash revenues fell from nearly 52.1 billion won ($39 million in 2012) to 8.2 billion won in 2022. Cash management costs accrue to 2 billion won ($1.5 million).

The change has caused frustration and anxiety among the digitally excluded, particularly seniors and children.

Seniors often leave cash tips to taxi drivers. “Older people, such as seniors whose daughters or sons call the taxi for them, often leave some cash to express gratitude. In the past, before all forms of payment transited to cards, a lot of people used to say ‘Keep the change’ when they paid in cash,” said Kang, a taxi driver.

This post is also available in: Spanish