*About the author: Youngho Lee is assistant manager of Seoul, South Korea-basedNautilus Hyosung Inc. Lee oversees marketing and planning for Nautilus Hyosung's independent sales organization business. If you would like submit comment about this article, please e-mail the editor.
The ISO market was first introduced in Korea when Hannet, a private company, launched credit-card-based cash services in 1990. In 1993, National Information & Credit Evaluation, more commonly known as NICE, was established. NICE connected networks with the Korea Financial Telecommunications & Clearings Institute, facilitating the withdrawal of money from savings accounts. Later, NICE's ISO business spun off and became known as NICE e-Banking Services.
NICE e-Banking Services is now one of South Korea's most recognized savings-account-based withdrawal and cash-loan service providers.
But the ISO service market did not truly take off in South Korea until 2001, when Nautilus Hyosung joined the market. Since non-banking financial providers were not allowed to directly connect their networks to the Korea Financial Telecommunications & Clearings Institute, Nautilus Hyosung had to reach the institute through alternative links. It also had to link to all the nation's major commercial banks to enable 24/7 ATM access for consumers.
To overcome the difficulty of finding proper locations for ATM installations, Nautilus Hyosung expanded its market to thousands of convenience stores throughout the country.Consequently, the number of c-stores in South Korea has increased from 2,826 to 9,085 since 2001.
Encouraged by Nautilus Hyosung's success, other ATM manufacturers began to watch the market. ATM manufacturer Chungho Comnet made its debut at the end of 2004, triggering keen competition.
Since 2002, ATM installations have increased from approximately 4,500 units to 14,230 units; by the end of 2004, South Korea's installed ATM base had almost doubled, hitting 7,800 units. At the end of 2005, the country had 11,400 ATMs.
Korea's unique ISO market
ISOs in South Korea are primarily represented by ATM manufacturers, and that gives them some unique characteristics when compared to ISOs in other countries. One notable characteristic: most Korean ISOs oversee all of the ATM business - manufacturing, installation, operation and maintenance.
Unlike other countries, where ISOs sell ATMs to merchants, South Korea's ISOs work from a placement/leasing model. In Korea, ISOs install ATMs at merchant locations for free. They also replenish all of the vault cash.
South Korean ATM manufacturers are taking charge of all business processes without splitting roles into segments, such as in the United States. The structure helps ISOs improve credibility and stability in their services, raise profitability, as well as prevent a surge of small new entrants from coming into the market.
A change in the market
The South Korean ISO market today is dominated by seven companies, including Nautilus Hyosung, NICE e-Bank Services, Chungho Comnet, Hannet and GateBank. Nautilus Hyosung is at the top, with more than 3,600 operating ATMs.
Because the growth rate of new ATMs is declining, and because of increased credit-card use and fierce competition with bank ATMs, the market's size isn't expected to change in 2007.
However, to cope with growing competition, ISOs are working to find new revenue sources. For its part, Nautilus Hyosung is focusing energy on raising profitability by developing a variety of add-on ATM features that are expected to evolve into independent kiosks.
Such versatile attempts are expected to serve as new growth engines in South Korea.