Korean Credit Card Association Spring Seminar
"Abolish the Qualified Cost Calculation System"
The maximum burden of Apple Pay fees is estimated at 34.1 billion KRW, while the cost of installing merchant terminals is approximately 600 billion KRW, according to a recent survey. The effect of increased card usage following the introduction of Apple Pay was found to be minimal.
Kim Sangbong, a professor of economics at Hansung University, announced these findings on May 23 at the '2025 Korean Credit Card Association Spring Seminar' held at the Bankers Club in Jung-gu, Seoul.
Professor Kim disclosed the estimated fee burdens under various Apple Pay fee rate scenarios. In the UK, the rate is 0.02?0.03%, while in the US, Japan, and the European Union (EU), it is 0.15%. Therefore, the scenario range was set at 0.03?0.15%.
Professor Kim calculated the fee burden by multiplying the amount of payments made via simple payment services by the fee rate, and then multiplying that figure by each mobile phone manufacturer's market share. As of last year, the total amount paid using mobile phone manufacturers' simple payment services was 89.2 trillion KRW.
When applying a 0.03% fee rate, the estimated fee burden was 19.9 billion KRW for Samsung Pay and 6.8 billion KRW for Apple Pay. At a 0.15% rate, the burden was 99.7 billion KRW for Samsung Pay and 34.1 billion KRW for Apple Pay.
After the introduction of Apple Pay in the second quarter of 2023, the increase in card usage was negligible. The amount of personal card usage increased by about 1.5 trillion KRW, and corporate card usage rose by about 900 billion KRW, but these changes were not significant.
Professor Kim estimated that introducing the near-field communication (NFC) terminals required for contactless payments such as Apple Pay to approximately 3 million merchants would cost around 600 billion KRW.
Currently, there are about 4 million merchants in Korea. As of last month, 533,471 merchants had installed NFC terminals, representing about 10% of the total.
In 2022, the year before Apple Pay's introduction, Hyundai Card and its affiliated merchants shared the terminal installation cost of about 8.6 billion KRW equally. For the two years starting from the end of 2023, Hyundai Card invested 4.325 billion KRW.
According to Professor Kim's estimates, with the introduction of Apple Pay, card companies would need to spend about 140 times what Hyundai Card has spent so far on terminal installation costs.
During the seminar, there were arguments that the government should abolish or ease the qualified cost calculation system to prevent further declines in card fee rates.
This is because stricter regulations on the qualified cost calculation system lead to sluggish private consumption, reduced consumer welfare, and a deterioration in card credit sales performance.
As card companies cut costs, their profitability declines, and they face management difficulties such as the need to diversify funding sources and the burden of improving credit ratings.
To compensate for reduced profitability, card companies have increased their card loan (long-term card loan) business, rather than their main credit card sales business. Various consumer benefits such as interest-free installments and discounts have decreased.
Ji Yong Seo, President of the Korean Card Association, announced that since the introduction of the system in 2012, the total asset return on assets (ROA) of card companies has dropped from 2.01% in 2012 to 1.43% last year, a decrease of 0.58 percentage points.
According to the Financial Supervisory Service, the year-on-year growth rate of card loan revenue for card companies rose from 3.89% at the end of December 2021 to 12.61% at the end of December last year, increasing nearly fourfold over three years.
President Seo pointed out, "As the fee rate decreases, card companies' credit card sales performance has declined and card loan performance has surged." He added, "Although the system was introduced on the premise that recalculating qualified costs is a rational way to determine costs, the fee rate has not increased even once in the 13 years since its introduction."
Professor Kim stated, "The current system has failed to reflect periods of rising interest rates or increasing risk management costs for card companies, and as a result, the fee rate has not been raised during that time." He added, "We should consider abolishing the qualified cost calculation system."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
