Starting Next Year, Separate Application Required for Cash Services...Card Companies Concerned About Profitability Decline (Comprehensive)

From Next Year, 'Cash Service' Available Only Upon Separate Request for New Card Issuance
Card Companies Concerned About Profitability Decline

[Asia Economy Reporter Ki Ha-young] The automatic application for cash services (short-term loans), one of the high-profit sources for credit card companies, will become impossible starting next year, signaling a red light for profitability. This is because financial authorities have mandated that consumers must make a separate application to use cash services from next year to improve consumer rights. Credit 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 this as the main point 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 followed.

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 arise 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."

Credit card companies agree with the consumer rights protection aspect but see an inevitable deterioration in profitability due to an immediate decrease in interest income. So far, credit 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, and if the number of cash service users decreases, interest income will inevitably decline accordingly.

Declining Trend in Cash Service Usage... 27.6 Trillion Won Used in the First Half of This Year

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 service usage has 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. Cash services, which are high-interest loans nearing 20%, 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 the increase of cash alternatives, cash services are gradually losing their place. As of the end of September, the cash service interest rates of seven specialized credit card companies ranged from 18.92% to 19.20%.

An industry official said, "Cash service usage is decreasing due to factors such as low interest rates," but expressed concern, "With the revision of the standard terms and conditions for individual members, if services are provided only to customers who apply for cash services, the number of users will decrease, inevitably leading to a decline in interest income from the loan sector."

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