Questions/Answers

The COVID-19 pandemic has heavily affected micro enterprises, low-income families and people in between jobs. Especially small businesses already felt it difficult to compete against large shopping malls and large retail chains. As Incheon is neighboring the capital city of Korea, it is economically, socially, and culturally dependent on Seoul. For example, 58.2% of consumption of Incheon citizens was made outside the region, making it hard to create production, consumption and employment within Incheon. In this context, an innovative and sustainable policies were required to boost the regional economy and generate profits for small businesses. Incheon e-EUM is the first local electronic currency in Korea. The program is designed to support micro enterprises registered and operating in Incheon and established through cooperation between the local municipality, academia, and civic groups. The electronic local currency combines a mobile app and prepaid cards embedded with integrated circuit (IC) chips, which can track and collect big data on consumption patterns of users and help the local government develop consumer-oriented policies. The purpose of Incheon e-EUM is two-fold. One is to boost the regional economy. The program can reduce the outflow of consumption into other regions and facilitate consumption within the region. And diverse additional services to the program help micro enterprises reduce costs, develop sales channels and increase their sales. Secondly, it can bolster the sense of community, connecting citizens to each other, people to city affairs, people to micro enterprises, and small-scale stores and businesses. For example, cashback can help encourage the culture of donation; the grouping function supports get-togethers and meetings; and cards for universities and apartment residents contribute to the sense of community.

Incheon e-EUM is designed to be used only in Incheon local shops not in big retail chains so that they can contribute to the local micro businesses. The unprecedented COVID-19 pandemic has given a shock to the economy, and among the hardest hit are micro businesses representing 86% of the entire registered businesses. And it offers 10 percent cashback on the purchase price at settlement, increasing disposable incomes of households and encouraging consumption. Incheon e-EUM supports low-income family finances and micro businesses during the pandemic-induced economic slowdown, help the local economy rebound.

Incheon e-EUM is in line with the Target 12 of SDGs, Responsible Consumption and Production. The program is aimed at vitalizing the local economy by reducing consumption in other regions and stimulating regional consumption. And diverse additional services of the program help regional micro enterprises reduce cost, explore new sales channel, and increase their sales.

After listening to citizens, experts, and related organizations, Incheon Metropolitan City came up with “Improvement measures for stable operation of Incheon e-EUM,” where the limitation of cashback per person is set so that the benefits are not concentrated on e-EUM card heavy users, and entertainment establishments and gambling businesses are restricted to affiliate. And a separate operating committee was set up in September, 2019 to discuss effective and sustainable operation of the program.

One of the weakest points in the Incheon economy is the outflow of consumption to other regions. What is notable is that the consumption outflow was reduced remarkably after the introduction of Incheon e-EUM. As large retail chains made inroads into the community, hampering the business of micro enterprises. The local municipality has focused on attracting capital from outside and not on creating economic engines. However, the city saw a big increase in consumption within the region (0.1% during the period of January to April 2019 to 3.6% during the period of May to December 2019) and a decrease in consumption outside the region (59.3% during the period of January to April 2019 to 58.9% during the period of May to December 2019) after introduction of Incheon e-EUM.

Incheon e-EUM is easy to use. Users just need to download the application, charge some amount of money in the card through the app and use the card as a debit card. Housewives are the most frequent users. Department store gift certificates are accepted only at related stores, and e-EUM cards are more available. Cashback, which can be used as cash immediately, is also a big help for family finances.

As of October 2020, the number of subscribers exceeded 1.35 million. In 2020, Incheon e-EUM transactions were recorded at KRW 2.4 trillion, ranking the first among local currencies nationwide. As much as KRW 55,000 worth of cashback can be offered to each e-EUM card holder, adding disposable income. And COVID-19-related support subsidies, including temporary supports for low-income families, livelihood supports for freelancers and workers on un-paid leaves, and emergency disaster support subsidies were provided as Incheon e-EUM coupons. In terms of emergency disaster support subsidies, 260,000 households or 21.2% of the entire households in Incheon selected to receive the supports in the form of Incheon e-EUM electronic gift certificates. The program contributed to stabilizing the livelihood of people and the local economy affected by COVID-19.

For local governments, it is not easy to secure budget for local micro enterprises. Incheon is no exception. Incheon e-EUM is the local currency program designed and introduced to bolster micro business owners and to boost the local economy. The program was established after discussions among academia, experts, and citizens. The existing paper gift certificates seemed outdated in the digital era, and the local currency in the form of a card was introduced. Digital innovation was mature enough for Incheon e-EUM. Incheon e-EUM was launched as a pilot program in June 2018. In July 2018, it obtained a Business Model patent for its operating system and methods of a regional development platform, which is the first at home and abroad as an electronic local currency. Now the platform is under examination for a US patent. In January 2019, Incheon Metropolitan City established the 2019 Plan of Incheon e-EUM Program, putting the implementation on track. The local government mobilized Incheon e-EUM supporters to promote the newly adopted system and volunteers to introduce to citizens how to sign up for the Incheon e-EUM program and guide micro enterprises to join the program. In April 2019, cashback percentage was risen with subsidies from the central government. Since May, each district started introducing Incheon e-EUM one by one from the Seo-gu district, the Yeon-su district, and the Michuhol-gu district. At this time, the number of subscribers and settlement values began increasing exponentially. In early 2020, Incheon e-EUM strengthened non-cashback incentives. But the unexpected COVID-19 pandemic hit hard micro enterprises, and in response cashback percentage is increased to 10%.

Offering cashback required a huge amount of budget, generating concerns that a decreasing budget for cashback would lead to a plunge in e-EUM transactions. In response, the Incheon government has a plan to increase the number of Incheon e-EUM member shops which offer additional discounts (Benefit+ e-EUM stores) on their own through e-EUM settlements and to provide diverse services on the Incheon e-EUM platform. The Benefit+ e-EUM stores are promoted through the app and such exposure to consumers leads to an in increase in sales.

The biggest strength is the provision of Innovative incentives. Offering cashback accelerates consumption within the region, creating the secondary market. Settlements can also be made through diverse mobile-based measures, including cards, QR codes, and barcodes Such a settlement convenience is another innovation offered by the program.

Smartphone settlement systems such as electronic wallet services, mobile payments and settlement apps are already familiar to many Koreans. Local currencies were initially issued in the form of gift certificates in 2018. But in 2019, they started to change into cards or go mobile. Incheon e-EUM is in line with this trend.

Most of the local currencies in Korea offer incentives when people buy gift certificates, and this way does not guarantee the link between invested budget (or discounted values) to consumption within the region. Incheon e-EUM offers incentives relative to real transactions or settlements through cashback and secures another consumption within the region. Cashback provision is made in real time, stimulating follow-up consumptions. This is not just a substitute for credit cards but results in growing marginal propensity to consume (MPC). After the implementation of e-EUM, Incheon’s MPC is above the national average in 2019, having a boosting effect on consumption.

The Incheon e-EUM card program is the first of its kind in Korea. Many local municipalities issue paper gift certificates to boost their economy. But in June 2018, Incheon e-EUM was introduced as mobile app-based cards. In 2019, transactions of Incheon e-EUM expanded rapidly. In 2020, the COVID-19 made local municipalities started to consider adopting similar local currencies, and now 8 metropolitan cities and 57 municipal governments operate local currencies as cards.

In January 2019, one of the largest Japanese printing companies, Dai Nippon Printing Co. (DNP), visited Incheon to benchmark the Incheon e-EUM program. They wanted to learn the boosting effects of the local currency on the regional economy because DNP has participated in the local currency project and public welfare projects. And scores of local municipalities in Korea have adopted the e-EUM platform. Incheon Metropolitan City and the e-EUM operating agency acquired a Korean patent on the platform and applied for a US patent in July 2019.

At the pilot stage in 2018, Incheon e-EUM started with the promotional expenses of KRW 2 billion (or USD 180,000) and grew into a program of KRW 197.6 billion (or USD 178.5 million). The budget is supported by the central government and the local municipality, and most of the program budget goes to offering cashback.

In order to operate the Incheon e-EUM platform in a more stable way and secure its sustainability, operators need to change from the current private agency commissioned by the municipality to a public-private cooperative legal entity. The changes in operators would lead to more publicness for the program, burden-sharing of financial investments, and development and implementation of new for-profit projects. And the Act on the Activation of the Use of Local Love Gift Certificates was enacted and implemented from July, 2020, laying the foundation for establishing the fund for bolstering Incheon e-EUM.

Yes

There are several analyses of the impact of Incheon e-EUM on the local economy. One of them is the Performance Analysis of Incheon e-EUM—the Local Electronic Currency (published on Oct. 31, 2019) written by Economics Professor Yang Jun-ho (junho@inu.ac.kr) of the Incheon National University. He conducted a survey on small businesses targeted by the e-EUM program about whether they experienced an increase in revenues, incomes, and consumers. Then, he empirically analyzed the impact of Incheon e-EUM on local added values and local economy, especially in terms of local multiplier effects.

Indices used in the analysis related to Incheon e-EUM are the number of subscribers, the number of settlements, the settlement values, the number of affiliate stores, retail sales index, large-scale sales index, consumption in and outside of Incheon, business survey index. These data were used for empirical analysis. The period for the analysis was from 2018 to September 2019.

In 2019, the number of subscribers to Incheon e-EUM was 920,000, and card issuance was worth of KRW 1.5 trillion, representing 65% of the total issuance of local currencies nationwide. Incheon e-EUM made a huge contribution to the local economy. From May to August, 2019, the reduction of consumption made outside of Incheon was KWR 35.9 billion and the inflow of consumption from other regions was recorded at KRW 63.4 billion. This is reflected in the increase in sales of micro enterprises. With the introduction of e-EUM, KRW 24 billion worth of consumption was moved from large retail stores to micro businesses. As of September 2019, the business survey index of small businesses increased 21% year-on-year. The proportion of consumption in the additional income rose from 90% in 2018 to 96.14% in 2019. The sales of micro businesses in terms of the legal tender increased KRW 221.1 billion year-on year. The whole sale and retail sectors and the food and accommodation sector generated 58,000 new employments using e-EUM. In the first half of 2019, KRW 74.4 billion worth of added value tax revenues were collected.

Incheon enacted the Ordinance on Issuance and Operation of Incheon Love Gift Certificates in July 2018. As local currency programs spread nationwide, the Ministry of Interior and Safety enacted the Act on the Act on the Activation of the Use of Local Love Gift Certificates in May 2020. When it comes to budget, the Incheon e-EUM program received subsidies from the central government and supported by the Incheon Metropolitan Government. Incheon district municipalities also take administrative and financial burdens at the early stage of the program to promote it, which was a catalyst for the expansion of users. For example, the Incheon Metropolitan Government established infrastructure and secured national subsidies, while the district municipalities offer additional incentives and increase the number of stores which joined as Benefit + Affiliates. The e-EUM program was recognized. It was held up as a best practice in the 2019 Korea Balanced Growth Fair. At the fair, a separate local pavilion was provided to promote the platform. The program was award with the 2019 Excellent Brand Grand Prize and the 2019 Star Brand Grand Prize.

The Incheon e-EUM operating committee has 23 members, including public servants, city council members, civic groups, micro business owners, professors, local currency experts, and media people. The committee is set up according to the Ordinance on Incheon Love Gift Certificate Issuance and Operation. Incheon e-EUM supporters were mobilized to promote the cards. Five-hundred university students were grouped into 40 teams and visited hot places to meet citizens promoting Incheon e-EUM. And they used social media, as well. In cooperation with the Education Office, student cards for middle schoolers and high schoolers were issued as Incheon e-EUM electronic certificates. Students can develop good finance habits using pocket money. The Seo-gu district office was make extra efforts for the use of Incheon e-EUM. For example, the district office appointed honorary promotional ambassadors. Resident representatives, business representatives, micro business people, traditional market representatives, etc. are doing volunteering activities. In addition, 42 neighborhood managers help seniors download the app on their mobile phones and visited small-scale shops to persuade them to join the Benefit+ affiliates.

Incheon e-EUM showed huge potential as a platform especially in terms of scalability and efficiency. The Incheon Metropolitan Government established the platform, on which each district ran their own services without additional cost for building a separate platform. Non-cashback incentives were developed and promoted on the platform, helping micro enterprise owners reduce costs and explore sales channels. Incheon e-EUM will offer a total solution service for Incheon citizens and small business owners.