[Square] Credit Cards and Disaster Relief Funds

Im Yu, former Executive Director of the Korea Financial Investment Association

The old saying that even the king cannot help the poor is wrong. We now live in a world where disasters can be alleviated. At the center of this is disaster relief funds. Whether called the 'COVID-19 National Coexistence Support Fund' or 'Disaster Basic Income,' nothing seems better suited to restoring the plummeting lives of the people in the face of an unprecedented viral catastrophe.

Due to the economic impact caused by the contraction of consumer sentiment from the spread of COVID-19, disaster relief funds have been provided to the public in five rounds. Since speed and efficiency are as important as the target and scale of support, it is natural that credit cards were chosen as the payment method for the relief funds.

South Korea is a global powerhouse in credit cards. The credit card penetration rate, transaction volume and speed, and system completeness are incomparable. It is a country where even in remote mountain villages, you can pay for a single bag of snacks with a card. Thanks to merchant fees dropping to historic lows, the fee burden on small business owners has become lighter than a feather. With both convenience and economy, it is impossible to discuss methods of delivering relief funds without including credit cards.

From a fiscal effectiveness perspective, payments through credit cards are superior to cash support. Japan, which paid 100,000 yen per person in cash, saw less than 10% of the support money consumed, whereas South Korea, which paid the first round of disaster relief funds via credit cards and local currency, saw the entire amount consumed. The National Assembly Budget Office analyzed that the production inducement effect of the first disaster relief fund was 1.81 times, and the Korea Development Institute (KDI) found that it induced an additional 30% consumption. These are examples.

Issuing the funds as 'non-refundable points' was also a masterstroke. If unused support funds cannot be reclaimed, wouldn't people be psychologically inclined to spend them first? Once consumer sentiment recovers, the vitality of the consumer market is unquestionable. The 'expiration' card to awaken sentiment was the right choice. According to the Small Enterprise and Market Service, the perceived business sentiment index (BSI) for small businesses and traditional markets in September this year recorded 57.6 and 77.4 respectively, surging 22.8 points and 44.8 points compared to the previous month.

While the world begins to praise the true value of credit cards, suspicion toward credit card companies remains unchanged from 15 years ago. A few days ago, during a national audit, it was mentioned that credit card companies' profits increased due to disaster relief funds. Although it was added that 'this is understood as an unavoidable situation,' the word 'profit' following disaster and damage is enough to criticize the card companies. Though just one letter apart, for ordinary people, profit and gain are as difficult to distinguish as fees and interest?alien concepts. Even if it is said that subtracting costs from revenue results in a loss, the train has already passed, and the sun has already set on the basis of such estimates.

It was the same 15 years ago. Someone shouted that the credit card merchant fee rate was too high, making it hard for small business owners, and that lowering it alone would improve their situation. The flow of opinion continued that way, and card companies suddenly became like loan sharks. Complaints that tampering with prices is impossible and that card users' welfare would decrease were not accepted. Arguments that a balloon effect would raise card loan interest rates and that the reduction effect on individual small business owners' fees was minimal, while the collapse of card companies' revenue base would be fatal and shrink overall employment, fell on deaf ears. For 15 years, card companies reduced fees again and again, but the situation for small business owners never improved.

Having been absorbed in grilling charcoal-smoked Samgyeopsal and not dining out for a while, I have recently started visiting meat restaurants again. My wife purchased the magnifying glass she had been wanting, and my daughter increased her visits to the hair salon. This is because of the 'Coexistence Consumption Support Fund.' Compared to the average card usage in the second quarter, I have to spend at least 1 million won more to get back 10%, or 100,000 won, but within my income level, I plan to bring forward consumption that I would have done anyway. Hoping that credit cards will work their magic again and improve our lives even a little, I swipe my card today as well.

Im Yu (Former Executive Director, Korea Credit Finance Association)

This content was produced with the assistance of AI translation services.