Credit Card Companies Sigh Over Abolition of Automatic Cash Service Applications

From Next Year, 'Cash Service' Available Only Upon Separate Request When Issuing New Cards
Card Companies Concerned About Profitability Decline

Photo by Yonhap News

[Asia Economy Reporter Ki Ha-young] As automatic applications for cash services (short-term loans), one of the high-profit sources for card companies, will be impossible starting next year, their profitability is facing a red light. This is because financial authorities have mandated that from next year, consumers must make a separate application to use cash services in order to improve consumer rights. Card companies, which have been earning substantial interest income from high-interest loans such as card loans and cash services, are now deeply sighing.

According to financial authorities and the industry on the 10th, the Financial Supervisory Service revised the standard terms and conditions for individual credit card members with the main point being this change to enhance consumer rights. According to the amendment, cash services can only be used if separately applied for at the time of card issuance in principle. To use cash services after card issuance, a separate procedure such as credit screening must be completed.

Currently, when a new credit card is issued, the cash service limit is automatically set. Since it is automatically set regardless of the issuer's intention, concerns have been raised that disputes may occur if the card is stolen or lost. A Financial Supervisory Service official said, "Through this amendment, consumer inconvenience caused by disputes in case of card theft or loss can be resolved."

Card companies agree with the consumer rights protection aspect but foresee an inevitable deterioration in profitability due to an immediate decrease in interest income. So far, card companies have defended profitability through business diversification such as auto installment financing, leasing, card loans, and cash services amid declining core business profits due to reduced merchant commission rates. The usage amount of card loans is similar to that of cash services, so if the number of cash service users decreases, interest income will inevitably decline accordingly.

In fact, unlike card loans, the usage amount of cash services itself is decreasing. According to the Financial Supervisory Service, the usage amount of card loans (cash services and card loans) in the first half of this year was 53 trillion won, an increase of 1.4% (7 trillion won) compared to the previous year. Card loan usage was 25.4 trillion won, up 10.5% (2.4 trillion won), but cash service usage (27.6 trillion won) decreased by 5.7% (1.7 trillion won).

Cash services have been continuously decreasing from 30.2 trillion won in the first half of 2018, 29.3 trillion won in the first half of 2019, to 27.6 trillion won in the first half of 2020. As a high-interest loan nearing 20%, cash services are losing customers to savings banks and others where interest rates are lower. Especially, with the rise of big tech companies and an environment where money can be borrowed cheaply and easily via smartphones, and with an increase in cash alternatives, cash services are gradually losing their place.

An industry official said, "Cash services are decreasing in usage due to factors such as low interest rates," but added, "With this revision of the standard terms for individual members, providing services only to customers who apply for cash services will reduce the number of users, inevitably leading to a decrease in interest income from the loan sector."

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