[Card Fee Reform] Interest-Free Installments and Discount Benefits Likely to Shrink... Consumer Backlash

With Franchise Fees Lowered Again, Consumer Benefits Expected to Decrease

Financial Services Commission Chairman Ko Seung-beom is delivering opening remarks at the ruling party and government meeting on card fee reform held at the National Assembly on the 23rd. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Park Sun-mi] “As the card merchant fees have been reduced, the VAN operators who lease and manage POS terminals have discontinued the free services they used to provide to self-employed business owners. The thermal paper used for printing receipts has become chargeable, and the previously free rental POS terminals now require monthly rental fees or must be purchased outright.” (Excerpt from self-employed business owner Bae Hoon-cheon’s speech at the Manmin Forum in June this year)

“I have to pay my credit card annual fee next month, so I checked the benefits and found that the small free beverage perks and overseas hotel and museum usage benefits quietly disappeared. The additional service benefits from card companies are getting worse, not better.” (Holder of the former Royal Blue card from Woori Card)

The ruling party and government announced on the 23rd another reduction in card merchant fees, which is expected to significantly reduce consumer benefits.

As it becomes more difficult for card companies to earn profits from their core business of credit sales, they have no choice but to reduce the benefits included in cards launched from next year. There is also a possibility that annual fees for credit cards with many additional services will increase. Ultimately, the burden from the card fee reduction will be passed on to consumers. In particular, if interest-free installment benefits are drastically reduced, it could lead to decreased consumption and prolong domestic economic stagnation.

Card companies conduct various marketing activities every year to expand their user base. Interest-free installments are a representative example, and they focus on maximizing users through discounts and various point accumulation services. However, when card merchant fee rates are lowered, card companies inevitably try to cut additional costs first to protect profitability. This leads to reduced marketing activities and consequently a decrease in consumer benefits.

In fact, card companies have responded to past card fee reductions by discontinuing cards with high discount rates and point accumulation rates. As a result, as of the 15th of this month, the total number of discontinued cards among the eight major card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana, BC) reached 192 (143 credit cards and 49 check cards). Since the significant fee reduction in 2018, the number of discontinued cards has more than doubled, reaching about 200 per year.

Although new cards are launched to replace the discontinued ones, the additional service benefits available to consumers are not what they used to be. This is why consumers say, “‘Hyeja cards’ (cards with many benefits) have disappeared and services are gradually deteriorating.”

Since card companies are introducing a ‘profitability analysis system guideline’ that allows only products expected to generate profits over the next five years to be launched, further reductions in card merchant fee rates are expected to lead to decreased card benefits for consumers. A representative from Card Company A said, “Merchant fees, along with annual fees, are the basic resources for providing benefits to customers. If the already deficit merchant fees are lowered again, it is inevitable that customer benefits, starting with new product benefits, will be reduced.”

Especially with the card industry facing a very poor profit outlook next year due to base rate hikes and card loan regulations, the scope of cost reductions could increase further. On top of that, the decision to reduce fee rates makes profitability deterioration unavoidable.

Professor Seo Ji-yong of Sangmyung University’s Business Administration Department said, “If card fee rates continue to decrease, card companies will have no choice but to further reduce various benefits to preserve profits. Since the government is already forcing reductions in corporate card benefits, lowering fee rates will ultimately reduce the benefits returned to consumers.”

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