‘Trying to Remove a Thorn but Getting a Lump’... Credit Card Cancellation Defense Marketing on the Rise

Request to Cancel Card Leads to Cashback and Interest-Free Installment Service 안내

[Asia Economy Reporter Park Sun-mi] Office worker Kim Jin-su (43) recently called a credit card company’s customer center to cancel an unused credit card and ended up getting ‘free money.’ This happened after participating in an event actively recommended by the customer service representative he was connected to. When Kim said he decided to cancel the card because he rarely used it, he was informed of a condition that offered cashback (cash) the more he used the card. Regardless of the previous month’s card usage, if he spent 15,000 won per month for two months, he would receive a total cashback of 30,000 won. The 2 to 6 months interest-free installment service was also attractive. Kim decided to put the card cancellation on hold and earn cashback by spending the minimum amount for two months.

Credit card companies are facing controversy for using event-based marketing to prevent customer churn. While this is interpreted as a struggle for survival in a challenging business environment, it has been pointed out that it violates the Financial Consumer Protection Act (FCPA), which prohibits proactively providing monetary benefits.

According to the card industry on the 24th, card company representatives actively recommend events through consultations instead of immediately guiding customers who want to cancel their cards through the cancellation process. For customers who want to cancel due to low card usage, they separately introduce cashback and interest-free installment events to increase usage. For customers burdened by high annual fees, they also encourage switching to products with lower annual fees.

The card industry’s active defense marketing against cancellations is due to fierce competition for customer acquisition and significant losses from existing customer churn. Considering the recruitment costs incurred when issuing cards, retaining existing customers has become as important as acquiring new ones.

With the abolition of the automatic cancellation system for dormant cards with no usage for over a year, customers who want to cancel their cards must now go through the cancellation process directly via a customer service representative. From the card companies’ perspective, this provides an opportunity to recapture consumers who are about to leave.

The number of cards lying unused at home is also increasing. According to the Credit Finance Association, as of the third quarter of this year, the total number of dormant cards was 11,984,000, an 8.1% increase compared to the same period last year. As non-face-to-face financial services have become possible, card issuance has become easier, and with competition in issuing Private Label Credit Cards (PLCC), many consumers have multiple cards, leading to an increase in dormant cards. As dormant cards increase, the number of cancellations inevitably rises as well.

A card industry official said, "Due to the FCPA, it is problematic for card companies to proactively recommend cards and provide monetary benefits to consumers, but if consumers express their willingness to receive recommendations, product recommendations and explanations can be provided. The card industry is facing fierce competition for customer acquisition and deteriorating profitability, so customized marketing to manage dormant and cancellation customers is inevitable."

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