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 card companies can provide to corporate members such as large corporations will be limited to within 0.5% of card usage amounts. While the card industry views this positively in terms of cost reduction, there are concerns 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 limit excessive economic benefits provided by credit card companies to corporate members to a reasonable level and specified the economic benefits that can be provided to corporate members.
The main point is that, under the premise that total revenue from corporate cards must exceed total costs, the economic benefits provided to customers (such as additional services, fund contributions, cashback, etc.) are limited to 0.5% or less of card usage amounts. Revenue is considered as the sum of annual fees plus merchant fees for corporate member usage (around an average of 1.8%). Costs include expenses for recruiting corporate members, card issuance and usage, and benefits provided to companies. However, small businesses with an average annual sales of 12 billion KRW or less are not subject to a separate benefit cap.
Card Industry Concerned That Reduced Costs May Be a Pretext for Fee Rate Cuts
The card industry views the possibility of reducing marketing costs positively. They believe that the reduction of 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 totaled 416.6 billion KRW, about 30 times more.
However, there are also concerns that the corporate card market will become entrenched according to existing market shares. For companies with lower market shares, it may become more difficult to acquire new corporate members. An industry official said, "The corporate card market is about one-sixth the size of the personal card market in terms of credit sales, but considering the business opportunities derived from acquiring corporate members, it is a market that cannot be missed," adding, "This measure makes differentiation difficult in price competition, 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 that order.
Some worry that the limitation on benefits for corporate members could become 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 might be preemptively reflected, providing a pretext for fee reductions."
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