[1mm Financial Talk] Samsung Pay Paid Service?...Card Companies Concerned About Passing Costs to Customers

Samsung Pay Free Contract Renewal Halted... Move Towards Paid Service?
Card Industry Tightens Belt... Customer Benefits Inevitably Reduced

Samsung Electronics has announced to credit card companies that it will not extend the existing Samsung Pay fee contract, leading to expectations that it will impose a transaction fee per payment, similar to Apple Pay. Amid uncertain economic conditions, credit card companies tightening their belts are increasingly concerned that they will reduce customer benefits or limits to maintain profitability.

According to industry sources on the 11th, Samsung Electronics recently informed credit card companies that it would not extend the existing fee contract. Until now, credit card companies had an agreement with Samsung Electronics under which they did not pay separate fees related to Samsung Pay, and the contract was automatically renewed every year. Only a small royalty was paid for allowing MST (Magnetic Secure Transmission) payment methods like Samsung Pay to be used in each card company's application (app). However, Samsung Electronics has announced that it will not renew the free usage group contract expiring in August and is likely to demand a fee per transaction.

Samsung Electronics has not yet disclosed detailed plans for fee imposition. Since Apple already charges Hyundai Card a 0.15% fee per Apple Pay transaction, it is expected that Samsung will impose fees at a similar level. The industry also expects that a tiered fee system based on the number of transactions will be considered.

The card industry is feeling bewildered as the unsettling prediction has become reality. An executive from a card company said, "Right after Apple Pay landed in Korea last March, I heard that Samsung subtly pressured card companies by saying that if they pursued Apple Pay partnerships, Samsung Pay would also impose fees," adding, "I did not expect the paid policy to be pushed this quickly."

Since 2012, merchant fee rates have been lowered every three years without any increase, and with rising funding costs, card companies have been tightening their belts, but now they face another challenge. Since Samsung Pay’s launch in 2015, the cumulative transaction amount reached 219 trillion won as of February this year, a considerable figure. If fees are imposed, the industry estimates Samsung Pay fees will amount to about 200 billion won annually. Furthermore, if various simple payment providers also demand fee increases, the decline in profits could be even greater.

In fact, although credit card usage has increased this year with the recovery in consumption, card companies’ earnings have not improved much. According to the Credit Finance Association, total card approval amount and number of approvals in the first quarter of this year increased by 11.5% and 11.9% respectively compared to the same period last year. However, card companies’ net profits have stagnated. Shinhan Card, ranked first, posted a net profit of 166.7 billion won in the first quarter, down 5.2% year-on-year. Samsung Card (-9.5%), KB Kookmin Card (-31%), and Woori Card (-46.3%) also showed consecutive declines.

Ultimately, if payment fees become more widespread, card companies are expected to reduce interest-free benefits or discount limits provided to customers to maintain profitability. Because of this, there is even a "blame theory" emerging against Hyundai Card in the industry. A representative from a major card company confessed, "In these already difficult times, Hyundai Card, which introduced Apple Pay and ignited the paid fee policy, really looks like a 'villain.' Customers are complaining, and the performance is not significantly improving; the situation is very tough."