Somewhere in the not too distant future, you will no longer see the Korean won. It will become something strange your grandparents still hold on to and give you during the Korean holidays. Contactless payments due to COVID have ramped up this movement toward a cashless society. It is not hard to imagine that within the decade cold hard cash will no longer exist in Korea. What will replace it? Digital currency. To be fair, most of the money in South Korea is held electronically. Therefore some might say it is already a cashless society in South Korea.
If every single person in South Korea decided to pull out cash at once, there would not be enough paper notes to cover the population. So the movement to a cashless society in South Korea would be an easier transition than most people think. In addition, due to COVID-19 this transition is happening faster than imagined. Seoul, for example, has expressed interest in experimenting with a digital currency called the S-Coin. However, that will only be the start of moving towards a cashless society in South Korea.
Are we in a Cashless Society in South Korea now?
Some might say South Korea, and especially Seoul has already become a cashless society. Korea has an almost 100% smartphone adoption rate. Payments with your mobile phone or credit card are at an all-time high. If you walk into a Starbucks in Korea and it is very possible some will not accept cash. There are self-ordering stations at McDonald’s, Coffee Shops, and even restaurants that don’t even take cash. However, if you compare Korea to China, Korea is still a few years away from going fully cashless.
Here are the sad truths about physical money. Physical money is an issue not only for the citizens but for the governments themselves. The Korean government has to spend billions of dollars just to print and mint Korean currency. Then they have to run an infrastructure that transports these currencies in armored trucks to banks by trained security guards. Then the currency needs to be sorted and stored in a secure vault. It is estimated that operating in cash will cost Korea around $7 billion a year. You would think this cost would be enough to motivate the Korean government to move to a cashless society as quickly as possible. However, this is not the main reason.
The main reason to move to a cashless society in Korea is that Koreans want it. There is a growing demand from the younger Korean generation that is looking for fast and easy ways to pay. Furthermore, the young generation in Korea that are looking to start their own business will most likely start one online. One lesson that COVID-19 has taught us is that opening an offline business can be risky. As more businesses look to sell their products and services online there will be more payment systems coming into the Korean market.
Cashless Society in South Korea Post-COVID-19
Koreans are now concerned more than ever about touching door handles, elevator buttons, and even cash. The WHO has never advised against using cash, however, more and more businesses in Korea are now accepting only contactless payments. Contactless payments are much cleaner than cash. The Korean won tend to circulate for about 7 years, so there are plenty of chances for it to pick up germs and viruses. It is estimated that over 90% of bills in Korea are contaminated with bacteria.
Koreans are using cash less and less. Thanks to the boom in the eCommerce industry in Korea due to COVID-19, Koreans are now more familiar than ever with e-payments. Even before COVID-19 hit Korea, cash had already been on the decline for years. For many Koreans, increasing digitization is synonymous with progress. Businesses in Korea are looking into virtual cards, prepaid cards, and even cryptocurrencies. As more businesses in Korea start to accept these digital forms of payment, it is only a matter of time before physical cash becomes obsolete.
How the Korean Government will Benefit
Moving to a cashless society is not just great for the young tech generation in Korea. The Korean government would benefit as well. Not only will they save a tremendous amount of money on printing money, but they will also be able to monitor tax evasion and fraud. Digital currency solutions will make it so that every payment is recorded and every transaction is logged. Doing your taxes in Korea could end up being as simple as pressing a few buttons at the end of the year. Furthermore, money laundering and tracking illegal activity will become much easier since transactions will be recorded.
How Koreans will Benefit
Korea already has the infrastructure to easily transition into a cashless society. Koreans all have debit or credit cards, apps, online banking, and other cashless payment options like Kakao Pay or Toss. Moving to a cashless society will mean that Koreans will now be fully able to track their finances. Every transaction will be recorded and Koreans will be able to have access to every aspect of any particular transaction. In addition, moving away from cash will mean that there will be more security. Cash can easily be stolen and it is very difficult to get it back. Credit cards, debit cards, and other payment options have protections in place to prevent users from losing their money to frauds or scams.
The Risks of Moving Towards a Cashless Society
To every innovative solution, there are of course downsides. With everything you buy being recorded, you will end up losing some privacy. Just because South Korea is a democratic country, doesn’t mean people in Korea shouldn’t be concerned about the Korean government having so much data on their citizens. Harvesting personal data can be very profitable not just for the Korean government but for companies as well. However, the biggest downside is, of course, cyber-attacks and hacking. Just as it is hard to stop bank robbers in real life, it is just as hard to stop cyber-attacks as well. Not only can digital currency be stolen but personal data can also be hacked.
Credit card companies have faced these kinds of hacks for years. Even cryptocurrency exchanges in Korea have had their funds stolen. Data breaches are a problem because the thieves are more sophisticated than the companies trying to stop them. You only need to succeed once as a hacker while companies need to protect themselves from all kinds of possible attacks. This is why cyber-security is one of the leading spaces for many innovative startups. Companies around the world are spending hundreds of billions of dollars on cyber-security solutions. The real question is who will outpace who? Cyber-security or hackers?
Gradual Shift to a Cashless Society is Key for South Korea
South Korea loves to embrace new and innovative technology and is aggressive in implementing said technology. However, becoming a cashless society should be a gradual process. While the younger generation in Korea is used to virtual payments, there are still millions of older generation Koreans that rely on physical cash. Some still go to their nearest Korean bank to pay their bills. Those that will suffer the most from a quick shift to a cashless society in Korea will be the poor and the elderly. Therefore it is important to make sure no one gets left behind.
Korean Banks are Getting Ready for a Cashless Society in South Korea
Korean banks have started to embrace Blockchain technology. There will come a time when countries like South Korea will develop their own digital currency as a replacement for their national currency. So where does that leave cryptocurrencies like Bitcoin? We saw a big clue about what happened with Facebook’s Libra. The US government got a lot of pressure from banks that saw cryptocurrency as a threat.
The move to a cashless society will happen at some point in Korea, the real question is which form of digital currency will win out in the end? The Central Banks or existing Cryptocurrencies? If history has anything to say, the Central Banks will lead the way. Cryptocurrency is a huge problem for traditional banks. However, national currency shifting to a national digital currency would be a homerun for traditional banks. This is why Korean banks have been spending millions of dollars on research and development of Blockchain technologies over the past few years. They are looking to position themselves as the key player if or when the Korean government looks to make this big transition. Therefore, it is important to educate ourselves and be prepared so we don’t get left behind.
