South Korea has left hard cash in the dust. The country is a virtually friction-free, digital payments dream, where just a fraction of purchases are done in notes and coins.

Park Se-hwa’s bookstore, on a commercial street in Seoul, is a holdout. Inside the narrow door, a sign reads: “The best way to support the bookstore is to pay cash.” She bristles every time she processes a purchase by card, since it means she has to pay a fee to the bank, taking a slice out of the already thin income she brings in from book sales.

Park refuses, on principle, to use payments services from local tech giants like KakaoPay or Naver Pay. She won’t build a platform on Amazon, the e-commerce behemoth that built itself up by reinventing the publishing world. 

“Those big companies are the public enemy of booksellers,” she said. 

Park, 31, has operated her bookstore for a little more than a year. Her first vocation out of college was in the national Air Force, working seven-hour shifts monitoring radar for signs of North Korean missile launches. She started again as an entrepreneur after spending years in a series of unfulfilling jobs, like an increasing number of young, educated Koreans.

With South Koreans’ buying activity moving almost entirely online, and the margins of small businesses contracting, she worries that the texture is disappearing from Seoul’s streets. “If you look in any new area, it’s always just chain stores that open, the same corporate convenience stores and coffee shops. Independent stores can’t compete with them,” she told Rest of World. 

Park may seem an anomaly, but she isn’t. Her fears reverberate as high up as South Korea’s lawmakers and its steely antitrust commission, who have spent this year attempting to rein in the country’s vastly powerful tech giants. Kakao and Naver, both multibillion-dollar, publicly-traded empires, are the main targets: They have rapidly expanded their tentacles into South Koreans’ digital lives in a way that uncomfortably mirrors the country’s previous generation of conglomerates, like Samsung and LG. The government worries that their growth is coming at the sacrifice of the country’s small businesses, who they say are being crushed with fees and impossibly high levels of online competition.

Over the second half of this year, the battle with regulators has intensified. Both Naver and Kakao recently backpedalled on plans to expand their fintech services when the Financial Services Commission abruptly tightened standards. As the companies’ jitters mounted, KakaoPay twice delayed its plans for a stock debut, infecting potential investors with concern. A total of eight different bills, proposed by lawmakers from both main parties, are pending in the legislature. They look to impose stricter standards on what kinds of fees online platforms can charge users, how much they can charge advertisers, and other measures intended to rein in their growth.

It’s an antitrust battle being waged over the world, including in the U.S. and the EU: how to push back against the vast tech companies that now own what is, essentially, key digital infrastructure, and can set the terms for its use by the rest of the market. In South Korea, a country used to top-down management of the economy, regulators have cracked down on global firms like Google and Apple to ease the burden on local app developers, while waging a similar battle against Kakao and Naver on behalf of small businesses. 

In South Korea, the antitrust clash is well underway. It’s somehow both early and too late: far ahead of the debate in the West, but already too late for smaller businesses to wrest back meaningful control.

Earlier this year, Kakao founder Brian Kim was briefly the richest person in his country. In July, Kim’s fortune surged to $13.4 billion as the pandemic fueled demand for messaging, video games, and other Kakao services, bringing him ahead of Samsung heir Lee Jae-yong’s $12.1 billion. The Korean media covers business brass as breathlessly as they do the entertainment elite, and Kim’s ascent was national news. 

Kim’s personal narrative is alluring. In South Korea — a resource-poor country that rose from a brutal war in the early 1950s to become an economic, technological, and cultural powerhouse — everyone loves a legend about an underdog, someone who relies on wit and diligence to triumph over long odds. Kim comes from a humble background, what Koreans call a “dirt spoon,” born as one of five children in a working-class family. He was the only child in his family to attend university. After starting a career at Samsung and leaving to experiment with a few entrepreneurial ventures, he launched Kakao in 2010. 

The coronation of Kim was also taken as proof of the South Korean economy’s evolution, from reliance on companies that produce physical goods, like Samsung Electronics or steel titan POSCO, to IT and fintech firms. In overtaking Lee for the top spot, Kim represented a new breed of Korean tycoons, separate from the country’s traditional elite and the old-money families who run the chaebol, the corporate conglomerates that dominate the economy. In other words, in a country where an increasing number of people believe that the system is rigged in favor of the rich and powerful, Kim’s rise seemed to show it was still possible to win through hard work.

But the fact that it only took one decade for Kakao to swell to that size, rather than the decades taken by Samsung, was a cause for both celebration and discomfort. Kakao’s rapid growth also tracks growing inequality in the country. The congratulations ended up being premature. By late September, pressure from South Korean regulators led investors to flee from Kakao over concerns about the company’s long-term growth prospects, wiping $4.5 billion from Kim’s fortune and reinstating Samsung’s Lee to the top spot.

Song Young-gil, the leader of the ruling Democratic Party, escalated the debate when he explicitly called on Kakao not to follow the country’s first generation of corporate heavyweights who, he said, “ignored fairness and shared prosperity by only pursuing their own profits.” The proposed bills aim to both limit what sectors the big firms can enter, and would introduce standards for B2B relations, an apparent move to avoid recreating the infamously lopsided relations between chaebol and their suppliers.

“These baby-boomer politicians see people younger than them getting rich, and, to some extent, they are envious.”

With an election approaching in May 2022, Song and other regulators are paying heed to the political clout of independent merchants, and hewing to their political vow to protect the middle class. As of August, there were 6.61 million independent businesses in South Korea, accounting for 23.9% of all employed people, according to Statistics Korea. That number showed a drop of 29,000 businesses from the previous year. A July survey by a trade association showed that small businesses’ sales fell by 46% from 2019 to last year, and 58% of respondents said they were considering shutting down. 

Much of that drop is related to the business restrictions imposed during the coronavirus pandemic. Street-level commerce is a major campaign issue, with candidates from both sides of the aisle pledging drastic increases in aid for small businesses. 

“Small businesses occupy a shrinking part of the economy, but they are very well-organized politically,” said Suh Yong-gu, a professor of marketing at Sookmyung Women’s University. “Politicians see this incredibly fast growth by Kakao and Naver, and see these new disruptive technologies destroying older pipeline business models, and they are under pressure to step in and protect the small- and medium-sized businesses.” 

Suh speculated that there was a more personal, generational motivation at play as well. “These baby-boomer politicians see people younger than them getting rich, and, to some extent, they are envious,” Suh said. 

On the other hand, Kakao, Naver, and their tech-industry peers defend themselves on the premise that they need open competition. Those who work inside the companies say they operate on a kind of permanent emergency footing, and can only hope to compete globally through ruthlessly focussed work.

“The [Naver] CEO always tells employees that [it] is under threat from other companies, the other search engines from abroad. ‘Our competitor is not Kakao: We have to compete with Google, Facebook,’” a spokesperson for Naver’s labor union told Rest of World. “Many people think Naver is the No. 1 company in Korea and we are stable. But every employee is under pressure to make some new product to keep our company’s position into the future.”

Kakao and Naver did not respond to Rest of World’s requests for comment.

While Kakao has a grip on the market for social entertainment and communications, Naver holds a majority of the search engine market in South Korea. It runs the dominant mapping service, and sucks in both shoppers and independent retailers, who can set up their own online storefronts on the platform. Google’s slice of the search-engine pie, however, has grown in recent years. 

There’s an understanding that South Korea’s government has a tight line to walk, balancing a protectionist instinct with the interests of their most successful companies’ global ambitions. Regulators are still struggling to decide whether the wisest course is to clear the way for the emerging tech titans to hone technologies that can then be deployed overseas, or if they should risk holding back the giants to protect the small operations that many rely on for their livelihoods.

Byungjoon Yoo, professor at the College of Business Administration at Seoul National University, told Rest of World that the proposed bills could backfire, and harm both small businesses and consumers. They could make it harder for fledgling merchants to reach new customers and shoppers to access the goods and services they want.

“If the government regulations that target these firms affect the day-to-day convenience of the users, then there might be a stronger backlash against Seoul’s decisions.”

“Too much or too tight regulation will stifle the innovations of companies. We’ve seen that many services end up being reduced or canceled because of regulation,” Yoo said. “Our government is too naive to consider these negative aspects.” One example is Tada, a popular ride-hailing service that was regulated out of existence in response to pressure from the taxi industry. 

While merchants pressure politicians to clamp down on Kakao and Naver, though, the South Korean public at large seems to care more about the conveniences the companies provide. 

Some of the customers who visit Yu Geum-ju’s casual clothing store in Seoul will peruse her wares while keeping one eye on their phones. If they see an item they like — say, a dress of a particular style or color — they plug search terms into Naver’s shopping platform, which will link to online retailers selling similar items. Since online retailers don’t have the overheads of a brick-and-mortar retailer, they often sell at lower prices. 

Online shopping continues to explode in South Korea, with government data showing the value of transactions increasing 23.9% on-year in the third quarter of this year. But Yu has been reluctant to embrace how technology is changing shopping. “People are always telling me how I need to have a presence on Naver, how that will open things up for me,” she said.

While some merchants see the local tech giants as threatening, consumers see it differently. “One thing to watch for is how the public perceives Kakao and Naver,” said Dongwoo Kim, a Massey College Junior Fellow at the University of Toronto. “Note that they don’t necessarily have the negative connotation that Facebook or Google have in North America and Europe — they provide convenient services to Korean citizens.” 

“If the government regulations that target these firms affect the day-to-day convenience of the users, then there might be a stronger backlash against Seoul’s decisions.”

So far, the companies have tread carefully, with Kakao even allocating more than $250 million to a fund to assist small merchants, while pledging to abandon its previous “growth-at-all-costs” approach to business.

Both Kakao and Naver appear to have at least slowed their expansion plans, but they are unlikely to scale back their ambitions. Relentless expansion, both domestically and abroad, is wired into the cultures of South Korean tech firms, analysts say, which can lend itself to brutal workplace cultures of long hours and intense pressure. 

“On the surface, Naver and Kakao say they benchmark Silicon Valley firms like Google, but, in fact, the only part of it they implement is the performance-driven culture. They still have top-down Korean culture,” said Yu Gyu-chang, a professor of human resource management at Hanyang University.

Park, in her bookstore, has filled any empty spots with relics from the pre-digital era: a record player, a piano, and stacks of vinyl. Grateful for low rent from her 71-year-old landlord, she teaches piano to him and his granddaughter. 

For Park, a millennial, the reach of the tech giants may already be longer than she expected. Amazon, for example, is her competitor, whether she chooses to engage or not.

“I thought I would have more customers,” she confessed. “Maybe nowadays lots of people read on Kindle, or just don’t buy books.”

Even despite government action, and the high stakes of a coming election, there is a sense that South Korea is watching a replay of the rise of the old conglomerates. In recognition of this, some are taking a pragmatic road.

Jung Tae-hwan started his restaurant at an inauspicious time last year, mid-pandemic. He knew he would rely on delivery and on online payments. Luckily, his food travels well: easily-packed fare like fried rice, crammed with soy-sauce chicken and sticky pork belly. He caved to accepting Naver Pay, the dominant platform, but is holding out on Kakao for fear of rising fees. 

Naver charges 2.2% on top of the purchase, and Kakao 2%. It’s far more than credit card fees, which hover around 0.8%. For every delivery order, a flat fee of roughly 6,000 won (around $5) goes to the platform. It’s a double hit to Jung’s margins that he accepts with a grimace.

Things have still gone better than expected, he told Rest of World. He quickly built a customer base and found a prosperous niche.

For all his frustrations, Jung recognizes that to grow his business he needs the reach enabled by the tech firms; he just wishes those platforms would acknowledge that the need is mutual, and that platforms have been built on small merchants who are barely getting by.  

He is, nevertheless, not convinced that government has the answers on how to create a more prosperous business landscape. “I would prefer if the tech companies would communicate directly with independent merchants, and we could come to an agreement that would benefit everyone,” Jung said. 

“In the spirit of business, we should be able to work together.”