Corporate Cards 60 Types, Sales Suspended from This Month... "Economic Benefit Exceeds 0.5%" (Comprehensive)

7 Major Credit Card Companies Suspend New Corporate Card Issuance
Mainly Mileage Cards and Premium Products

[Image source=AP Yonhap News]

[Asia Economy Reporter Ki Ha-young] Starting this month, benefits that card companies can provide to corporate members such as large corporations are limited to within 0.5% of card usage amounts, leading to a series of suspensions in the issuance of some corporate cards. This is interpreted as a process of reorganizing products that card companies have been offering to corporate members with excessive economic benefits, mainly mileage cards and premium products.

According to the card industry on the 6th, the number of corporate cards discontinued by seven specialized card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) since this month has reached 60 types. This averages 8.6 types per company. Sales are suspended only for new issuance to corporate members excluding individual business owners and small businesses, while renewals and reissuances are still possible.

This is a measure in accordance with the amendment to the Specialized Credit Finance Business Supervisory Regulations implemented this month. The main point is to limit economic benefits (such as additional services, fund contributions, cashback, etc.) to within 0.5% of the corporate member's card usage amount, within the range where total revenue from corporate members' card usage exceeds total costs.

However, for small businesses, considering the small scale of corporations, and for national and local governments, considering that revenue is adjusted through national treasury, only the criterion that total revenue exceeds total costs is applied. Small businesses are defined as those with an average annual sales of 12 billion KRW or less for manufacturing, etc., and 1 billion KRW or less for restaurants, etc.

Accordingly, it is analyzed that card companies are reorganizing products that have provided excessive economic benefits to corporate members. An industry official explained, "Since benefits that can be provided to corporate members are limited to 0.5%, products exceeding this cannot be sold anymore," adding, "Products that provided benefits exceeding 0.5% are also reducing benefits through changes in additional services and informing corporate members accordingly."

With this amendment to the credit finance business supervisory regulations, card companies are expected to reduce marketing costs. Card companies have been providing excessive economic benefits to attract large corporate members, and there have been criticisms that such cost increases lead to burdens on merchant fees. According to the Financial Services Commission, as of the end of 2018, the annual fees borne by corporate members to card companies were 14.8 billion KRW, whereas the economic benefits provided by card companies to corporations amounted to 416.6 billion KRW, about 30 times more.

Some point out that the corporate card market may become fixed according to existing market share rankings. It is suggested that it will be more difficult for companies with lower market shares to secure new corporate members due to difficulty in differentiation through price competition. The corporate card market is an indispensable market for card companies that need business diversification in terms of business opportunities derived from securing corporate members. As of the first quarter of this year, the market share of corporate cards among the seven specialized card companies (based on credit sales excluding corporate purchases) is as follows: Woori Card (21.87%), KB Kookmin Card (19.28%), Shinhan Card (15.11%), Samsung Card (14.42%), Hyundai Card (11.85%), Hana Card (11.69%), Lotte Card (5.78%).