The South Korean credit card payments market is set to grow at a compound annual growth rate (CAGR) of 4.8% between 2022–2026 to reach KRW1,060.5 trillion ($890.9 billion) in 2026, as it recovers from the COVID-19 pandemic, forecasts GlobalData a leading data and analytics company.

According to GlobalData’s Payment Cards Analytics the credit card payments value declined by 0.1% in the country in 2020, due to reduced consumer spending during the pandemic. However, the market registered a 9.9% growth in 2021, supported by economic recovery and government initiatives to boost consumer spending.

Kartik Challa, Senior Banking and Payments Analyst at GlobalData, comments: “Credit cards are the most preferred payment choice in South Korea, accounting for nearly 80% of total card payments by value in 2022. Koreans are prolific users of credit cards with the frequency of payments by credit cards at 137.5 times in 2022, which is much higher than that noted in developed markets such as France, Canada, the US, and the UK, where the frequency of use is 128.1, 83.6, 68.8, and 54.9, respectively.”

The Korean government has been taking a number of initiatives to promote the usage of card payments. On October 1, 2021, the Ministry of Strategy and Finance launched the Win-Win Consumption Subsidy program, which allowed card holders to receive 10% cashback if their monthly credit/debit card usage is 3% higher than their average monthly usage in the last two quarters. The scheme ended on June 30, 2022.

Earlier, in January 2021, the government announced a slew of tax benefits for consumers to claim additional tax deductions of up to KRW1.0 million ($840.0) on increased credit card spending by 5% in 2021 compared to 2020.

Although on a recovery path, the Korean credit card market still faces a number of challenges such as global geopolitical risks and inflation. To tackle the rising inflation, the central bank of South Korea increased its benchmark interest rate from 2.25% to 2.50% in August 2022, which was further increased to 3% in October 2022. Rising interest rates will increase borrowing costs on credit cards, thereby discouraging credit card spending.

Challa concludes: “The reopening of businesses, rising employment, and government initiatives have all increased consumer spending in South Korea, thereby benefitting its credit card market. A revival in travel will further boost the credit card usage in the country. However, heightened global economic uncertainty and rising inflation could slowdown growth in the near-term, dampening consumer confidence.”