A council on financial information by the Bank of Korea (BOK) and local banks decided to develop technological standards and a mobile application for the new service that enables sellers to receive money directly from the buyer's bank account.
In South Korea, a daily 1.9 trillion won (US$1.7 billion) worth of payments were made by credit and debit cards last year, accounting for 75.4 percent of total private consumption. Bank-issued cash cards were rarely used.
On a mobile basis, moreover, a majority of mobile payments were made through credit and debit cards, with no mobile payment system for bank-issued cash cards have been set up in the country.
Due to the complex fee structure in the credit card industry, merchants who accept credit cards have to pay swipe fees of an average 2.1 percent on all credit-card transactions to the service provider. For debit cards, they pay 1.6 percent of commission, with up to 1 percent for cash cards.
Under the new cash card system, however, the BOK said the sellers and customers do not need to operate in such a complex payment system. Instead, a purchase will be carried out between the merchant, customer and banks.
"If the new mobile payment platform is available next year, it will give more options to customers and help decrease social costs related to credit card commissions," Lee Jong-yeol, director of the e-finance division at the BOK, said in a press briefing. "We will build new payment infrastructure for banks and shops. They can develop their own business models based on the new system."