Card companies are facing challenges in securing profitability due to reduced merchant fee rates and rising funding and bad debt costs. Even as card usage increases, it remains difficult to boost revenue from transactions, compounded by the financial burden of funding and managing defaults. Additionally, external platforms such as Naver Pay, Kakao Pay, and Toss are expanding consumer touchpoints, intensifying competition for payment leadership.
According to the financial sector on November 9, a key factor pressuring card industry profitability is the reduction in merchant fee rates. In February of last year, the preferential fee rates for small and medium-sized merchants were lowered by 0.05 to 0.10 percentage points based on annual sales brackets. As of the second half of this year, preferential fee rates are applied to 95.7% of all credit card merchants.
The recovery of fee revenue has also been slow. In the first half of this year, the merchant fee revenue of all eight major card companies reached 3.96 trillion won, a 5.01% increase from the same period last year, but still falling short of the 4.73 trillion won recorded in the first half of 2024.
Cost burdens continue to mount. Unlike banks, card companies cannot accept deposits and must rely on issuing specialized financial company bonds for funding. Refinancing bonds issued at lower interest rates with those at higher rates increases interest expenses. As borrowers' repayment capacities decline, provisions for bad debts also rise, further squeezing profits.
In the payment sector, competition with external platforms has emerged as a significant challenge. According to the Bank of Korea, in the first half of this year, simple payment services accounted for 52.6% of all in-person transactions without physical cards. Among the usage of simple payment services, fintech companies represented 72.0%, while card companies' own services accounted for 28.0%.
As consumers increasingly register their cards on preferred platforms for payments, card companies are finding it harder to secure direct customer engagement. While revenue from card payments remains stable, the platforms are taking the lead in attracting customers and enhancing payment experiences. Card companies must continue to increase the use of their own apps and maintain customer relationships amid this competitive landscape.
In the lending sector, companies must balance profitability with soundness management. In the first half of this year, card loan revenue was 2.61 trillion won, a 1.41% decrease from the same period last year. According to the Financial Supervisory Service, the total delinquency rate for major card companies was 1.54% at the end of June, up 0.02 percentage points from the end of last year.
Under the financial authorities' push for inclusive finance, lending to low- and medium-credit borrowers has also increased. In the third quarter, the total amount of mid-interest loans handled by eight card companies reached 2.45 trillion won, a 14% increase from the same period last year. While expanding loans to secure interest income, companies must also monitor borrowers' repayment abilities to manage default risks.
An industry insider stated, “We face the dual challenge of regaining lost leadership in the simple payment market while improving profitability in the lending sector. If we cannot enhance our competitive edge in payment platforms and diversify our revenue sources, card companies may find their positions further weakened in competition with big tech firms.”
* This article has been translated by AI.
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