[Fee Tragedy]② Apple and Samsung Pay Monetization 'Simple Payment Risk'... Losing Sales Leadership

'No Solution to Profitability Decline... Helplessness... Concerns Over a Cardless Society'

Following Apple, the card industry is on high alert over whether Samsung will monetize its simple payment fee structure. If Samsung takes action, Naver, Kakao, and Toss Pay are likely to follow suit. Financial authorities have decided to lower merchant fee rates over six years until 2030, reducing the fee income that card companies receive from merchants. However, they may face a 'double burden' of having to bear the hefty fees imposed by big tech simple payment platforms. This is expected to further increase the management uncertainty of card companies, which are already struggling with credit card sales operations.

According to industry sources on the 14th, the estimated fee rate Hyundai Card pays to Apple Pay is 0.15%. The financial and IT sectors believe that Shinhan Card and KB Kookmin Card are likely to introduce Apple Pay in the first quarter following Hyundai Card. Accordingly, Samsung Pay plans to withdraw its domestic free service policy. It is reported that there is a prevailing view inside and outside Samsung that applying a fee rate similar to Apple Pay's is reasonable.

The Mobile Experience (MX) division of Samsung Electronics' Device Experience (DX) sector, which oversees Samsung Pay, is considering introducing fees in August. Samsung Pay will renew contracts with card companies in August. It is expected that the fee rate, if introduced, will be the same as Apple Pay's estimated 0.15%. An IT industry insider familiar with Samsung's MX division said, "Although approval from the Group Business Support Task Force (TF) in Seocho-dong, Seoul is required, the MX division has decided to set a reasonable (same) fee rate in response to Apple Pay," adding, "Samsung will communicate the fee application policy to card companies during negotiations in August."

If Samsung collects fees from card companies, Naver Pay, Kakao Pay, Toss Pay, and others are highly likely to follow suit. Multiplying the Bank of Korea's daily simple payment transaction amount (237.35 billion KRW) by Apple Pay's 0.15% fee results in card companies bearing fees of about 130 billion KRW. This means the estimated Apple Pay fees alone amount to 130 billion KRW. Assuming Samsung, Naver, and Toss also charge 0.15% fees like Apple, the cost would quadruple to around 500 billion KRW annually. Considering the mobile payment market's annual growth rate of about 10%, the fee costs are bound to increase beyond 500 billion KRW per year.

'No Solution to Profitability Deterioration... Helplessness... Concerns Over a Cardless Society'

The industry views it as difficult to find a clever solution to 'break through' this crisis head-on. Rather, there are concerns that the explosive popularity of big tech simple payments, especially among young people, may accelerate the transition to a cardless society. While the big tech counterattack and the authorities' regulation-focused policies are recognized as a 'gray rhino'?a crisis that is known but cannot be prevented?the industry remains helpless.

An academic source said, "The card industry lacks deposit functions and must issue corporate bonds to raise funds, so they are reluctant to comment on the negative business environment," adding, "The current situation, where regulatory tightening, competition with big tech simple payment providers, and fee and cost burdens are intertwined, is seen by the industry as a gray rhino scenario that they know about but cannot stop." He further noted, "While the low creditworthiness of borrowers taking out card loans is a problem, the more serious issue is the shrinking business environment itself, which is blocking the card companies' ability to raise funds through corporate bonds in the financial market."

Card companies are focusing their management strategies on cost reduction and expanding loan businesses targeting low-income groups. Rather than actively seeking 'escape routes' such as export expansion, strengthening overseas localization strategies, or innovating technology and systems, they are scrambling to maintain profitability through strategies like discontinuing card products, reducing interest-free installment plans, and cutting promotional benefits such as cashback.

Instead of aggressively acquiring new customers, they maintain a conservative sales policy that focuses on retaining existing loyal customers while encouraging subscriptions to premium cards with high annual fees. According to the Credit Finance Association, among eight major card companies (Lotte, BC, Samsung, Shinhan, Woori, Hana, Hyundai, KB), the number of discontinued credit card products increased from 255 in 2021 to 67 in 2022, then surged to 405 in 2023 and 482 last year. The average annual fee for cards released within the past year ranges from 100,000 to 200,000 KRW, roughly double the 50,000 to 100,000 KRW range two years ago.

Professor Seo Ji-yong of Sangmyung University's Department of Business Administration said, "The burden of big tech simple payment fees from Apple, Samsung, and others is increasing, making it more urgent than ever for card companies to restore their core credit card sales competitiveness," adding, "Meanwhile, as the authorities push policies to lower fee rates, card companies are forced to focus their strategies more on loan businesses than on credit card sales." He warned, "If borrower delinquency rates rise, card companies will face increased cost burdens and declining profitability, making it increasingly difficult to break this vicious cycle."

Meanwhile, the card industry is continuously appealing to financial authorities to change the policy direction of lowering merchant fee rates. They argue that with the fee policies of the simple payment industry and market variables such as economic recession, it is burdensome to also bear policy risks. As market and policy conditions intertwine, veteran employees with over 20 years of service at Hyundai, KB Kookmin, Hana, and Woori Cards have undergone voluntary retirement procedures since the beginning of the year. These card companies reported that they accepted voluntary retirement applications from a "double-digit" number (10 to 99) of employees and executed them last month. While voluntary retirements at card companies cannot be solely attributed to the authorities' fee rate reduction policies, it is true that fee rate adjustment policies significantly impact management. The retirees are veterans with about 20 years of service, most of whom earn salaries in the hundreds of millions of KRW. It is reported that many of them pack up voluntarily despite knowing it will be difficult to find reemployment. This is a representative case showing how negatively the card industry views its growth momentum in the field.