Profitability Analysis System Guidelines to be Implemented from the 31st
Sales Costs < Revenue, Deficits Must Be Reported to the Board of Directors
[Asia Economy Reporter Ki Ha-young] Additional services on newly released cards are expected to be significantly reduced in the future. This is due to the 'Profitability Analysis System Guideline,' which requires card companies to design new cards so that profits exceed sales costs. Although the purpose is to prevent excessive cutthroat competition among card companies, a reduction in consumer benefits seems inevitable.
According to the financial sector on the 21st, the Credit Finance Association held a regulatory review committee meeting the day before to review the 'Card Product Profitability Analysis System Guideline.' If there are no objections after the upcoming representatives' meeting, the guideline is scheduled to be implemented from the 31st.
This guideline is a follow-up measure to the 'Measures to Enhance Card Industry Competitiveness and Improve High-Cost Business Structures' announced by financial authorities in April last year. It was promoted due to the continuous occurrence of products with large losses caused by imprecise profitability analysis.
According to the guideline, each card company is expected to incorporate standards related to profitability analysis and internal control into their internal regulations by next month. Subsequently, newly released products will undergo more rigorous profitability analysis than before.
The core of the guideline is to design new cards so that sales revenue exceeds sales costs, and to report countermeasures to the board of directors if deficits occur. In particular, when calculating profits, ambiguous indirect effects such as reputation enhancement and affiliate synergy effects are excluded. Profits consist of annual fees, merchant fees, and installment fees. Costs include additional service costs, marketing, sales management costs, which are all direct and indirect costs related to credit sales, known as operating costs, as well as funding costs. Accordingly, excessive additional services previously provided for recruitment activities are expected to decrease.
Consumers have expressed dissatisfaction. As the card industry faces difficulties, so-called 'Hyeja Cards' (cards with generous benefits) have already been discontinued. Office worker Kim Ji-eun (33, female) said, "I was using an airline mileage accumulation card, but cards with substantial mileage accumulation have already been discontinued," adding, "With multiple cards in hand and benefits decreasing, I think I will be more cautious about issuing new cards."
There are also concerns within the card industry that attracting new consumers with new products will become more difficult. An industry insider said, "Even before the guideline was established, card companies conducted profitability analyses before launching products," and added, "Once the guideline requiring reporting countermeasures to the board in case of deficits is implemented, profitability analysis will inevitably become more conservative than now, and consumer benefits will decrease accordingly." Meanwhile, this measure is a voluntary regulation, so even if violated, financial authorities cannot impose sanctions.
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