Imagine that you have been buying cool T-shirts from an American company for several years and in 2012, you go to place another online order for a custom T-shirt but, when you try to select your country for shipping, South Korea is no longer listed. Imagine that the company you have ordered from many times in the past no longer sells to Korea because of “a large number of fraudulent transactions that we have received from that region in the past”.
This is just what happened recently when I went to purchase another T-shirt from the very cool designbyhumans.com site. The customer service representative was nice enough to explain that due to a large amount of credit card fraud, Korea is off their list of countries that they do business with. I had to ask just what could have happened that would influence a company to ban doing business with an entire country!?
To understand this better, we should look at the recent history of the credit card in South Korea. Credit card usage in South Korea began in 1969 with Samsung/Shinsegae but really became commonplace in 1987 and with the revised tax law in 1999, credit cards were for mainstream use(cite).
Since that time, problems have risen that have caused economic trouble for Korea. Koreans fell in love with using the credit card, so much so that in 2002 women in mini-skirts were hawking cards on the sidewalks, in the subway, on the college campus. South Koreans had 148 million credit cards — an average of 4 credit cards per person by the end of 2002 (cite).
The real start down the slippery slope of Korean debt came with Kim Dae Jung’s use of credit cards to improve the Korean economy. The government issued annual tax rebates based on the amount of purchases, and required all retailers to accept credit cards. Each time a consumer used a credit card, the transaction was entered into a lottery that awarded cash prizes(cite). As with any deal with Satan, this too-good-to-be-true economic surge came with a price – the interest rate for credit card overdue payments was incredibly high, and if you were unable to pay back your overdue loan within six months, the total amount to pay back doubled. Naturally, the average fellow thought “hey, why not take out another credit card to pay off the others that are due” and this in turn lead to disaster. According to Kim Yeong-Seon:
As more and more people failed to make payments, credit card companies began to limit the number of new accounts and prohibit cash advances, causing countless numbers of Koreans to default on their credit card debt.
As the credit crisis worsened, crime rates, especially robberies and assaults, began to increase throughout the country. In March 2002, police arrested four college students for attempting to rob a bank using automatic rifles. According to the police, the students said they needed money to pay off $11,300 in debts they had accumulated buying a car, brand-name clothes and luxury goods for their girlfriends. Stories of suicides by those who faced extraordinary financial difficulties also began to appear in the media. As of the end of 2003, about 4 million South Koreans – nearly 10 percent of the entire population – had defaulted on credit card debt.
Even LG Card ran out of cash in 2003, bringing it to the verge of bankruptcy. The government started a Credit Recovery Supporting Service that enabled people to reschedule their debt and the credit companies changed their business practices so that within three years time the credit crisis had been averted.
Now, moving forward in time, we have almost the same conditions here again. Koreans now own more than 100 million credit cards – nearly the same number as in 2002 and South Koreans now owe more money as a percentage of their disposable income than Americans did at the start of the sub-prime crisis, and a lot more than they did at the outset of Korea’s last credit card crisis in 2003 (cite). Despite financial authorities’ strong measures against excessive credit card use, South Koreans are expected to have charged a total of 540-trillion won on credit last year. The amount will be the second highest annual credit spending since credit card transactions were first recorded (cite). As per Jasper Kim from the Asia-Pacific Global Research Group in Seoul, “Korea has a unique debt problem, it has nearly $1 trillion (USD) worth of personal debt, half of which are credit cards and a notable portion dealing with mortgages”. . . Combined with the steadily increasing household debt, this is a problem that could easily lead to an economic disaster for most people in South Korea.
Source: Financial Times
Though this abundance of credit cards is a real threat to the economy here, the real problem and reason that I can no longer order T-shirts from South Korea is the lax security involving credit card usage in Korea and the resulting explosion of credit card fraud. Recently Korean organized crime has been behind illegal online gambling and credit card fraud operations out of the Philippines. Various countries and hackers such as Shin Un-Sun (and his group) ran a sophisticated hacking operation out of the Philippines, hacking various large Korean corporations as well as the Korean stock exchange itself (cite). Cards are usually cloned by criminals, in various countries, and then criminals come to Korea to shop or go online to shop and this is very easy since no card verification takes place. Nowadays anyone use can use a card in Seoul without signing a credit slip and without any identification or signature verification. Due to this incredibly relaxed atmosphere in South Korea and the use of cards with easily copied magnetic stripes, credit card fraud has become pandemic.
Though the Financial Supervisory Service in South Korea has just now declared that credit cards with the magnetic stripe – the easiest cards to clone and commit fraud with – are to be replaced by cards that contain an embedded chip (chip and PIN system), this comes only after a tremendous amount of fraud has taken place. Though chip credit cards have been around since 2003, more than 20 million magnetic strip cards are still being used in the market (cite). The chip and PIN system though has already been hacked in Europe and changes will need to be made to the existing technology here in Korea to avoid what has already been a growing problem in Europe.
Meanwhile, I still wonder if I can just mail designbyhumans a twenty-dollar bill instead of dealing with an American bank.