South Korea is on its way to becoming a cashless society, but faces hurdles, disturbing truths about money and freedom
Oh Jong-gyun, a 35-year-old in Seoul, had an awkward moment when he went to pay for valet service during a blind date last week. Not only was he feeling shy in front of a lady he had just met that evening, Oh also realized that he hadn‘t carried ”real money“ for months.
“I risked losing face, on my first date, to ask her for 3,000 won. Well, she didn’t have it either,” he said.
Oh is one of growing number South Koreans living without physical money as they no longer see the need to carry it around.
As one of the most tech-savvy countries in the world, Asia‘s fourth-largest economy has been swiftly morphing into a cashless society in recent years, backed by its widespread use of smartphones.
Cash isn’t in much circulation anymore, with the nation’s central bank saying that its banknote retrieval rate saw an all-time low of 40 percent last year.
The lack of demand for cash has also led to a drop in counterfeit money, with the Bank of Korea saying that a record low of only 272 forged bills were found last year.
The COVID-19 pandemic last year has not only increased online transactions, but it has also changed the perception that sending gifts –- especially pocket money for the Korean Lunar New Year holiday –- via Kakao Talk, the country’s most widely used messenger app, is “rude.”
The total amount of Lunar New Year pocket money sent via Kakao Pay, the mobile payment service arm of Kakao, jumped 249 percent on-year this year, according to Kakao Pay. The service allows the user to transfer money in “digital envelopes,” and “became a bridge that connected families that had to be physically separated in the time of COVID-19,” Kakao Pay said.
The introduction of bitcoin and other cryptocurrencies to the market has been changing the payment landscape as well.
Local retailers have recently started embracing cryptocurrencies as valid payment methods, fueling the transition into a cashless society.
One of the most popular cryptocurrencies used in major retailers here is “paycoin,” a cryptocurrency used on the payments and remittance app Paycoin run by Danal Fintech. According to Danal, Danal Fintech’s parent group, paycoin can be currently used in 70,000 different stores here including convenience store chains CU, 7-Eleven, E-Mart 24, fast food stores Domino Pizza, BBQ and KFC along with the country’s largest cinema chain CGV.
Paycoin app amassed over 1.5 million users this month, Danal said.
Of conglomerates, retail giant Shinsegae has been a forerunner among peers in using cryptocurrency. It decided last month to allow paycoin to be converted into online vouchers that can be used like cash at Shinsegae Department Store, E-Mart, Starbucks and more.
According to data released by the Bank of Korea in March, the amount of payments made electronically hit a record high last year, with the COVID-19 pandemic pushing people towards contactless e-commerce. The daily average value of electronic financial transactions amounted to 705.5 billion won ($633.7 million) in 2020, up 32.7 percent on-year, BOK data showed. A cashless, but ‘totalitarian’ society
For the Bank of Korea, the progress in central bank digital currency development and popularity of cryptocurrencies produced by private companies are matters of its authority and power.
“The form of money that is directly produced by the central bank has become less and less important in recent years… In other words, central banks have lost ‘market share’ of the money in an economy,” UBS chief economist Paul Donovan said in a report published last month.
Unlike cryptocurrencies, CBDCs would work as proper currencies, under the central bank, interchangeable with notes and coins in circulation and accepted for tax payments.
The BOK’s own CBDC launch would become a milestone towards cashless society, but Donovan also warned of a possible “Big Brother” scenario, as experts point to China’s case.
“Governments could increase knowledge of their citizens’ activities,” he said.
“If CBDCs are widely used, in theory the government could discover a great deal about an individual’s life simply by monitoring the payments that individual makes.”
So far, the nation’s central bank has been maintaining a conservative stance towards cryptocurrency and cautious attitude towards its own CBDC development. It has been releasing details of its “pilot tests” for CBDC, yet the BOK has also been repeatedly denying the tests are a step before an actual launch.
Meanwhile, the People’s Bank of China -- a forerunner in the global central banks’ efforts to fend off threats from cryptocurrencies -- has been reportedly working closely with Ant Group, the fintech affiliate of Alibaba Group, since 2017 on CBDC development. Beijing has already distributed digital yuan in pilot projects across major cities.
The possibility of going cashless but being under monitoring of the state also concerns Oh.
“I wired 3,000 won to the valet service team in the end in which I left my name, account number and my mobile phone number exposed during the process,” he said.
“It was, of course, convenient because I didn‘t have to look for an ATM, but it felt uncomfortable too, because records remain forever.“
By Jung Min-kyung (firstname.lastname@example.org