‘Got More Than Expected’... Trying to Cancel Card but Receiving Cashback (Summary)

Marketing Boom to Retain Loyal Customers for Card Companies

[Asia Economy Reporter Sunmi Park] Office worker Jinsoo Kim (43) recently called a credit card company's customer center to cancel an unused credit card and ended up receiving a 'free money' benefit. This was because the consultant who answered the call actively recommended participating in an event. When Kim said he decided to cancel the card because he rarely used it, the offered condition of cashback (cash) the more he used it was attractive. Regardless of the previous month's card performance, spending 15,000 KRW per month for two months resulted in a total cashback of 30,000 KRW. The 2-6 month interest-free installment service also played a part. Kim decided to postpone the card cancellation and earn cashback by spending the minimum amount for two months.

Credit card companies are facing controversy for conducting card cancellation defense marketing through events 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 proactively prohibits providing monetary benefits.

According to the card industry on the 24th, card company consultants actively recommend events through consultations instead of immediately guiding the cancellation procedure when consumers want to cancel their cards. 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 recruitment costs incurred when issuing cards, retaining existing customers has become as important as acquiring new ones.

The automatic cancellation system for dormant cards with no usage for over a year was abolished in 2019, so customers who want to cancel their cards must go through the cancellation process directly via consultant connection. From the card companies' perspective, this provides an opportunity to recapture consumers who are about to leave.

A total of 232 new cards (199 credit cards and 33 check cards) were issued this year, the highest number of new products released in the past five years. As new cards continue to be introduced, 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.

With the era of non-face-to-face financial services making card issuance easier and the competition in issuing Private Label Credit Cards (PLCC) leading consumers to obtain multiple cards, the number of dormant cards has increased. As the number of dormant cards grows, 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 conducted. The card industry is also 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.