[Exclusive] "Card Payments Blocked"... Stock Investment Gift Card Payments Suspended (Comprehensive)

'Sangtech (Gift Certificates + Investment)' Setback
Financial Authorities "Remove from Credit Card Payment Methods"

[Asia Economy Reporters Sunmi Park, Hayoung Ki] Office worker Kim Sumin (pseudonym) has been purchasing 500,000 KRW worth of financial gift certificates every month at the beginning of the month through open markets like 11st. She uses card payments to accumulate card spending performance, receiving a 10% discount offered by the open market and also enjoying card discount benefits by meeting card usage requirements. The purchased financial gift certificates are used to buy stocks or funds, and some can be converted into cash. For example, she buys 100,000 KRW worth of stocks through a securities firm application and cashes out the remaining 400,000 KRW. This method yields cash gains from gift certificate purchases plus card benefits, making it a triple advantage.

However, this kind of ‘Sangtech’ (gift certificate + investment technique) will no longer be possible. Financial authorities have judged that purchasing stocks with cards and cashing out part of them are both problematic. This change comes amid growing concerns over household loans and ‘debt investment’ as interest rates rise rapidly.

According to the financial sector on the 26th, open markets including 11st have blocked all credit card payments for financial gift certificates issued by securities firms such as Korea Investment & Securities and KB Securities starting from the previous day. Financial gift certificates are exclusive vouchers for purchasing or subscribing to financial products such as domestic and foreign stocks, bonds, funds, repurchase agreements (RP), equity-linked securities (ELS), and derivative-linked securities (DLS). Up to 500,000 KRW can be registered monthly, and even if only 1 KRW is used to buy stocks, the rest can be immediately cashed out. Withdrawal is also possible after 31 days without any transactions.

What is the problem with credit card payments for financial gift certificates?

Due to these characteristics, financial gift certificates have recently surged as a financial investment tool, especially among people in their 20s and 30s. For example, Korea Investment & Securities’ financial gift certificates sold about 3.46 million units worth 167.1 billion KRW in the first year after their launch in March last year, and as of the 25th of this month, cumulative sales reached 5.74 million units worth 269.2 billion KRW, accelerating the sales pace.

Even if purchased with a credit card, the purchase counts as card usage, allowing users to accumulate mileage or other benefits, and immediate cash conversion is possible after purchase. Therefore, even those without the intention to invest in financial products have increasingly bought gift certificates up to the monthly limit. An industry insider said, "Since you can buy financial gift certificates with a credit card and then pay the card bill on the due date, it is widely known as a way to invest in financial products without holding actual cash," adding, "This method is called ‘Sangtech’ in online stock investment communities."

Why was card payment suddenly blocked?

The blocking of card payments this time was due to intervention by financial authorities.

A financial authority official explained, "We requested excluding credit cards as a payment method for financial gift certificates," adding, "Unlike other gift certificates, financial gift certificates have lax cash withdrawal conditions, so continued card payments could cause side effects." He further stated, "Under the Specialized Credit Finance Business Act, financial investment products cannot be purchased with credit cards, while gift certificates can be bought with cards. Although financial gift certificates are classified as gift certificates, they also have the nature of financial investment products, so a review was necessary."

Accordingly, the continuation of financial gift certificate sales on open markets has become uncertain. The Financial Services Commission designated the sale of financial gift certificates on open markets, which was previously prohibited, as an innovative financial service (financial regulatory sandbox) in October 2019, granting a special exemption for two years (up to four years). With the exemption period expiring this October, if many problems are found during the overall service review, the continuation of the service cannot be guaranteed.

Among consumers, many respond that financial gift certificates, which can now only be paid for in cash, are no longer attractive. Without card benefits such as spending performance, they argue that it is better to directly subscribe to financial products through securities firms rather than buying financial gift certificates with cash to invest in stocks or other products.

The securities and card industries also accept this measure but feel somewhat regretful. While registering financial gift certificates as ‘gift certificates’ on open markets caused loopholes, they believe that if financial authorities had consulted with open markets and the card industry, side effects could have been minimized from the start. A card industry official pointed out, "The nature of financial gift certificates is ambiguous," adding, "There should have been discussions on how to define their nature before selling financial gift certificates."