Capital, Market Share Down 10% in 4 Years... Intensified Battle Between Card Companies and Auto Finance Market (Comprehensive)

Credit Card Companies Diversify Businesses
Market Share Nearly Doubles
Capital Companies Decrease by Over 10%

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] In the new car financing market, the market share of capital companies has decreased by more than 10% over the past four years. This is because credit card companies, which need to diversify their businesses, have entered the automobile financing market, which was the main stage for capital companies. It is expected that the competition between capital companies and credit card companies over the automobile financing market will intensify.

According to the 'Securities and Capital Credit Risk Outlook' released by NICE Credit Rating on the 28th, the market share of capital companies in the new car financing market has fallen by more than 10% in the past four years. The market share, which was 84.9% in 2016, dropped to 77.0% in 2017, 75.9% in 2018, 75.6% in 2019, and 72.1% as of the third quarter of last year. This is a decrease of 12.8% over four years.

On the other hand, credit card companies (Shinhan, KB Kookmin, Samsung, Woori Card) nearly doubled their share from 15.1% to 27.9% during the same period. In particular, their market share jumped 3.5 percentage points compared to the previous year. The credit card industry, facing profitability deterioration due to reduced merchant fees, has entered the new car financing market, which is the main business of capital companies. It is evaluated that the decline in capital companies' market share in the new car financing market has accelerated after the COVID-19 pandemic.

Credit card companies generally have higher credit ratings than capital companies. Therefore, they can gain a relative advantage in terms of funding interest rates, which they leverage to expand their market share in the new car financing market. On the other hand, capital companies, except for Hyundai Capital, the captive finance company of Hyundai Kia Motors, and installment finance companies for imported cars, inevitably have to reduce their proportion of automobile financing. In fact, last year, Shinhan Capital transferred automobile financing assets to Shinhan Card. Among the 25 companies rated by NICE Credit Rating, the proportion of automobile financing assets in the total managed loans of capital companies shrank from 52.7% at the end of 2016 to 46.4% as of the third quarter of last year.

Lee Hyuk-jun, head of the Financial Evaluation Division at NICE Credit Rating, said, "As the proportion of automobile financing decreases, capital companies are expected to shift their business structure from low-risk, low-return to high-risk, high-return." He added, "After COVID-19, the business structure of capital companies is accelerating this change."

Six Full-Service Credit Card Companies Enter Car Installment Financing Market This Year

This year, with Hana Card also entering the automobile installment financing market, all full-service credit card companies now handle automobile installment financing products. Five companies?Shinhan, KB Kookmin, Samsung, Woori, and Lotte Card?have already entered the automobile installment financing market. Credit card companies are expanding their automobile installment financing assets and growing their scale. As of the third quarter of last year, credit card companies' automobile installment financing assets surged 16.7% year-on-year to 8.6866 trillion KRW.

An industry insider said, "Capital companies still hold an advantage in the used car market, but the market share of credit card companies in the new car financing market is noticeably expanding." He added, "Competition to secure revenue sources between the two industries, both facing profitability declines, is expected to become increasingly fierce."