Growth of the card payments market in South Korea is set to slow to 5.9% in 2023 to reach KRW1,176.6 trillion ($988.4 billion), as rising inflation is expected to weigh on consumers’ disposable incomes, forecasts GlobalData, a leading data and analytics company.

GlobalData’s new report titled ‘South Korea Cards and Payments: Opportunities and Risks to 2026,’ reveals that the card payments market in South Korea registered 10.9% growth in 2022 to reach a value of KRW1,111.1 trillion ($933.3 billion), supported by a post-pandemic rise in consumer spending and economic recovery.

Ravi Sharma, Lead Banking and Payments Analyst at GlobalData, comments: “South Korean consumers are prolific users of payment cards and the frequency of card use increased from 79.1 times per year per card in 2018 to 89.7 times in 2022. A strong banked population, high financial awareness, benefits such as cashback and discounts, and government support have driven payment card usage in the country.”

Credit cards are the most preferred cards in South Korea, accounting for 79.3% of card payments value in 2022, mainly driven by reward benefits such as discounts and cashback. Debit cards account for the remaining 20.7%.

The pandemic drove a significant shift in consumer preferences towards electronic payments. According to a survey published by the Bank of Korea in June 2022, average monthly household cash expenditure declined by over 25% between 2018 and 2021. As per the same survey, there is growing reluctance among merchants such as cafes, self-employed businesses, and supermarkets to accept cash, which has benefitted card payments.

The government has also taken several initiatives to promote the usage of card payments. One of those initiatives is the provision of tax benefits on credit card spending, allowing customers to claim additional tax deductions of up to KRW1 million ($840) on taxable income if they increase their credit card spending by 5% as compared to previous year.

Like many markets globally, a rise in inflation is affecting consumer purchasing power in South Korea. To tackle this, the central bank of South Korea increased its benchmark interest rate from in phases from 2.25% in August 2022 to 3.5% in January 2023. This would increase borrowing costs for consumers and impact credit card spend.

Sharma concludes: “While South Korea has been gradually recovering from the impact of the pandemic, it is now facing the challenge of rising inflation and decreasing disposable incomes. As consumers look to cut down on unnecessary spending, it will impact card spend, which is expected to register a compound annual growth rate (CAGR) of 5.0% between 2022 and 2026.”