Card Companies Lower Cash Service Interest Rates... "Adjustment Ahead of July's Maximum Interest Rate Reduction" (Comprehensive)

7 Major Credit Card Companies as of March
Average Interest Rate Reduced by 0.36%p Compared to End of Last Year

[Asia Economy Reporter Ki Ha-young] Ahead of the statutory maximum interest rate reduction scheduled for July, cash service (short-term loan) interest rates at credit card companies are decreasing. With the maximum interest rate set to drop from the current 24% to 20%, it is interpreted that card companies have begun adjusting their rates.

According to the credit finance association's disclosure on the 4th, as of the end of March, the average cash service interest rates (operating price) based on standard grades for seven major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) ranged from 17.90% to 19.19%. The average rate among the seven companies was 18.58%, which is 0.36 percentage points lower than the average of 18.94% recorded at the end of December last year.

All seven companies saw their average interest rates fall over three months, ranging from a decrease of 0.03 percentage points to as much as 1.13 percentage points. In particular, Hyundai Card offered the lowest average interest rate, dropping from 19.03% at the end of last year to 17.90% at the end of March this year, a decrease of 1.13 percentage points. Lotte Card also saw a significant decline of 0.54 percentage points during the same period. Hyundai Card explained that it lowered its rates independently ahead of the statutory maximum interest rate reduction.

The card company with the highest average cash service interest rate was KB Kookmin Card at 19.19%. Hana Card maintained an interest rate of 19%, continuing from last year with 19.08%. Samsung (18.83%), Woori (18.49%), Shinhan (18.36%), and Lotte Card (18.23%) followed.

For high-credit customers in grades 1 to 2, Woori Card offered the highest interest rate at 15.32%. Conversely, Hana Card recorded the lowest rate at 11.7%. For low-credit customers in grades 9 to 10, interest rates approached the statutory maximum of 24%. Samsung Card lent money at the highest rate of 23.59%, while Woori Card, which offered the lowest rate to low-credit customers, still recorded 20.24%.

Cash Service Usage Amount 4 Trillion Won in February... Interest Rate Reduction Seen as a 'Desperate Measure'

The move to lower cash service interest rates is influenced by the maximum interest rate reduction, but there are also opinions that it is a desperate measure by card companies to secure the shrinking cash service customer base. Since cash service rates are higher than those of card loans (long-term loans) or internet banks, and it no longer holds an advantage in terms of convenience, card companies have no choice but to take the measure of lowering interest rates.

In fact, cash service interest rates are about 5-6% higher than card loans. As of the end of March, the average card loan interest rate among the seven major credit card companies was 13.21%, while cash service rates were 18.58%, 5.37 percentage points higher.

Because of this, cash service usage has been steadily declining. According to the Bank of Korea's economic statistics system, the amount of personal cash service usage by credit card companies recorded 4.0201 trillion won as of the end of February. This is a 16.8% decrease compared to the previous year (4.83 trillion won), marking the lowest level since 2003. The cash service usage amount, which reached 26 trillion won in 2003, has decreased to the 4 trillion won level over 18 years.

Cash service usage is expected to continue declining. Since cash service customers generally have lower credit ratings than card loan customers, they are more affected by the statutory maximum interest rate reduction. According to the credit finance association, as of the end of March, nearly 50% of cash service users among the seven major credit card companies were subject to interest rates exceeding 20% annually. Hana Card's proportion reached 60.46%, followed by Hyundai Card at 56.52% and KB Kookmin Card at 54.92%.

An industry insider said, "Ahead of the statutory maximum interest rate reduction, we are adjusting cash service interest rates," adding, "As services competing with cash services, such as fintech, increase, card companies have no choice but to use interest rate reductions as a means to secure the shrinking cash service customer base."