"Corporate Member Benefits Within 0.5%"... Card Industry Fears Fee Reduction Excuse Despite Cost Savings

Effective from July
Card Companies Expect Cost Savings
Concerns Over Potential Excuse for Fee Reduction

[Asia Economy Reporter Ki Ha-young] Starting from July, the benefits that credit card companies can provide to corporate members such as large corporations will be limited to within 0.5% of the card usage amount. The card industry views this positively in terms of cost reduction but is concerned that the reduced costs might become a pretext for future reductions in merchant fees.

According to the industry on the 13th, the Financial Services Commission has approved an amendment to the Credit Finance Business Supervisory Regulations to reasonably limit excessive economic benefits provided by credit card companies to corporate members and specified the economic benefits that can be provided to corporate members. The main point is to limit the economic benefits provided to customers (such as additional services, fund contributions, cashback, etc.) to less than 0.5% of the card usage amount. However, small businesses with an average annual sales of 12 billion KRW or less are not subject to a benefit cap.

The card industry views this positively as it can reduce marketing costs. The reduction in cutthroat marketing competition to attract corporate members will enable cost savings. According to the Financial Services Commission, as of the end of 2018, the annual fees paid by corporate members to card companies amounted to 14.8 billion KRW, whereas the economic benefits provided by card companies to corporations were 416.6 billion KRW, about 30 times higher.

However, there are concerns that the corporate card market will become entrenched according to the existing market share rankings. For companies with lower market shares, acquiring new corporate members may become more difficult. An industry official said, "Although the corporate card market is about one-sixth the size of the personal card market based on credit sales, the business opportunities derived from acquiring corporate members make it a market that cannot be missed," adding, "This measure makes differentiation in price competition difficult, which may disadvantage companies with lower market shares." As of last year, the corporate card market share (based on credit sales excluding corporate purchases) was KB Kookmin Card (19.07%), Woori Card (17.87%), and Shinhan Card (15.92%) in order.

Some are concerned that the restriction on benefits for corporate members could be used as a justification for lowering merchant fees. A card company official said, "Ahead of the merchant fee recalculation this year, the cost reduction for corporate members may be preemptively reflected, providing a pretext for fee reductions."