Card Companies' Outlook for Next Year Gloomy: "Profitability Down, Delinquency Rates Up"

Card Loan DSR Application from Next Year
Merchant Fees to Be Recalculated by Year-End
Delinquency Rates Also Likely to Rise

[Asia Economy Reporter Ki Ha-young] Bleak forecasts are emerging regarding the business environment of the card industry next year. Not only the core commission revenue but also card loans are likely to see profitability deteriorate due to strengthened regulations. Moreover, concerns are rising that there is no sharp solution to overcome the worsening profitability as growth is also threatened by increased delinquency rates, asset soundness issues, and the expanding influence of big tech (large information technology companies).

According to the industry on the 10th, Korea Credit Rating Agency recently diagnosed at the 'Post-COVID Non-bank Financial Institutions Risk Review' seminar that the strengthened loan regulations will increase the burden on the card industry's external growth and profitability. From next year, the Debt Service Ratio (DSR) will be applied to card loans (long-term card loans), and the total volume regulation limit will also be lowered. In particular, it is expected that the burden of managing asset soundness will increase in the short term. This means that both the profitability and soundness of card companies will be threatened next year.

With an additional reduction likely in the merchant commission fees to be recalculated at the end of this month, it has become difficult to secure profitability even in loan products that had so far compensated for commission deficits due to strengthened regulations. Furthermore, delinquency rates, which have been stably managed until now, are also highly likely to soar. Wi Ji-won, head of the Structured Evaluation Division at Korea Credit Rating Agency, expressed concern, saying, "With the proportion of multiple debtors in card loans at a high 64.4%, the end of loan maturity extensions and interest payment deferrals implemented during COVID-19 will likely lead to a rise in delinquency rates."

The sense of crisis felt on the ground by the card industry is even more desperate. Both profitability and soundness are expected to deteriorate next year, and there is no breakthrough for growth either. Simple payment service providers such as Naver Pay and Kakao Pay are rapidly growing, expanding their influence within the payment industry, which had long been a solo stage for card companies. In fact, as of the third quarter, Naver Pay's payment amount reached 9.8 trillion KRW, approaching the 10.7 trillion KRW payment amount of small and medium card companies (Lotte, Woori, Hana Card) during the same period.

An industry insider lamented, "The long-standing low-interest rate trend has recently shifted to an upward trend, increasing funding costs and other expenses. If merchant commission fees are further reduced at the end of this year, profitability next year will inevitably decline further, and with big tech expanding its influence in the payment market using platforms as a weapon, the situation is becoming increasingly difficult."

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