40 Trillion KRW Auto Installment Financing Competition... Card Companies Expand Assets and Enhance Services (Comprehensive)

KB Kookmin Card Launches Used Car Safe Payment Service
All Major Card Companies Enter Auto Installment Finance Market This Year
Business Diversification Amid Declining Merchant Fee Revenue

[Asia Economy Reporter Ki Ha-young] Competition among credit card companies to dominate the domestic auto installment finance market, valued at 40 trillion won, is intensifying. As the market is being reorganized into a duopoly led by Shinhan Card and KB Kookmin Card, both companies are expanding their services beyond new cars to the used car market, while small and medium-sized companies are also growing by increasing their assets.

According to the card industry on the 3rd, KB Kookmin Card launched the 'KB Kookmin Card Used Car Safe Payment Service' on the same day, which grants sellers one-time merchant status for peer-to-peer used car transactions, enabling payment by credit card. This service was designated as an innovative financial service by the Financial Services Commission in February last year. It provides various convenient services necessary for car sales at once, including vehicle price, insurance accident history, and inspection accompaniment by professional mechanics. In particular, through the 'payment escrow' service, where the payment is made two business days after the purchase is confirmed, including vehicle title transfer, it reduces transaction uncertainty and risk such as fraud and defective vehicle sales in peer-to-peer transactions.

Seller registration is possible regardless of KB Kookmin Card membership, and buyers can use the service if they hold a KB Kookmin Card credit card. The fee for using the service is 1% of the payment amount. Sellers and buyers each bear 0.5%, and when using linked installment financing, the buyer's 0.5% fee is waived. Both sellers and buyers can use the service once a year, and credit card lump-sum payments can be made up to 20 million won.

Urgent Need for Business Diversification Among Card Companies, New Car Finance Market Share Doubled in Last 4 Years

Competition among card companies in the auto installment finance market has become even fiercer this year. Following Shinhan, KB Kookmin, Samsung, Woori, and Lotte Cards, Hana Card has also entered the auto installment finance market, making all specialized card companies handle auto installment finance products.

The duopoly centered on Shinhan Card and KB Kookmin Card is also solidifying. According to the Financial Supervisory Service's Financial Statistics Information System, last year Shinhan Card's auto installment finance assets topped the list at 3.528 trillion won, closely followed by KB Kookmin Card at 3.463 trillion won. KB Kookmin Card's asset size surged 25.2% compared to the previous year, narrowing the asset gap between the two companies to 65 billion won. Woori Card ranked third with assets of 1.0676 trillion won. Woori Card has accelerated the expansion of its auto finance business by opening a total of 11 specialized auto finance branches last year and this year, increasing to 20 branches currently. Hana Card, which entered the auto installment finance market this year, introduced 'Auto Installment' allowing up to 60 months of installment repayment and 'Auto Loan' with loans up to 100 million won.

The market share of card companies in new car finance has also notably increased. According to the 'Securities and Capital Credit Risk Outlook' released by NICE Credit Rating at the beginning of this year, the market share of card companies (Shinhan, KB Kookmin, Samsung, Woori Card) in new car finance nearly doubled from 15.1% to 27.9% over the past four years. Meanwhile, the market share of capital companies fell from 84.9% in 2016 to 72.1% as of the third quarter of last year.

As business diversification is necessary to compensate for deteriorating profitability due to merchant fee reductions, competition among card companies surrounding the auto installment finance market is expected to intensify. Last year, the auto installment finance revenue of five card companies (Shinhan, Samsung, KB Kookmin, Woori, Lotte Card) engaged in the auto installment finance business totaled 273.1 billion won, a 12.5% increase from the previous year. An industry insider said, "As merchant fee income continues to decline, revenue from the auto installment finance market is increasing," adding, "Competition will become even fiercer to secure profitability."

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