Mobile Billing in South Korea

by Russ Jones on September 22, 2011

in Ecommerce Payments, Mobile Payments, Russ Jones, South Korea

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The following is an excerpt from Glenbrook’s South Korea eCommerce Market Analysis report, published in December 2010, and is representative of how relevant domestic payments methods are positioned and explained for eCommerce merchant’s considering doing business in a given country. From Boleto Bancário in Brazil to the ITZ Cash Card in India, this how mobile billing works in South Korea.

South Korea was one of the first countries to develop what is now referred to globally as bill-to-mobile, an approach for paying for small ticket goods and services by adding the charge to the monthly mobile bill. With nearly the entire South Korean population mobile enabled (92.7%), this payment method offers enormous market coverage. Danal, one of the leading mobile payment service providers in South Korea, claims that 80% of mobile subscribers have used mobile billing, and that 60% of all digital content purchases in Korea are billed directly to mobile accounts.

Here’s how mobile payments work in South Korea. A consumer buying something online — either on their computer or their phone — decides to bill the purchase to their mobile operator during the checkout process. They are redirected to the mobile payment service provider’s website where they are prompted to enter their phone number and a national identification number. The Mobile PSP then directly connects to the appropriate carrier to validate the information and then sends an approval code back to the buyers phone via SMS in real-time as the purchase is authorized. The buyer enters this approval code with the mobile PSP to finalize the purchase and the charge is then added to the buyer’s monthly bill.

This payment method was developed with the active participation of the mobile operators — all of who wanted to financially participate in the booming South Korean virtual goods market. To encourage use and adoption of their payment method, the carriers generally take only a single digit commission — a small amount compared to normal bill-to-mobile economics in other country — depending on the type of goods being sold. For virtual goods, mobile carriers generally take a 5% commission; for physical goods it drops further to just a 1.0 to 1.8% commission. Of course, sellers will generally have to pay transaction fees to the mobile PSP, usually 6.0-8.0% for virtual goods, and 2.5-3.5% for physical goods.

The payment method has proven so popular with buyers that the carriers have gradually increased spending limits to well over $300 per mobile number per month and have seen consumers start to use mobile payments to pay for online purchases of books, clothes, and other types of consumer goods. They are also using bill-to-mobile to pay for services (e.g., pizza delivery) and other intangibles (e.g., event tickets) which now representing ~20% of total volume.

The three major mobile operators — SKT (SK Telecom), KT (Korea Telecom), and LG U+ (LG Group) — all participate in bill-to-mobile payments. These operators often restrict the billable amounts to specific transaction amounts, and will also cap the total billable amount that can be added to the monthly bill. Monthly caps will also vary depending on the length of time the mobile subscriber has been a customer (new customers are risk managed more tightly) and how rigorously the subscriber is authenticated by the mobile payments enabler. A first time mobile subscriber with no authentication, for example, might be limited to US$20 to US$30 per month, while a long-time subscriber using a government ID would be able to add substantially more purchases to their monthly mobile bill.

Reports are currently available for Brazil, Russia, India, China, South Korea, Argentina, Mexico, South Korea, Poland, and Turkey. More information is available from the Glenbrook website.

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