[1mm Financial Talk] The Inside Story of Card Companies Venturing into PF... "A Sense of Crisis That There Is No Future"

[Asia Economy Reporter Eunju Lee] Recently, concerns have been raised as the proportion of real estate project financing (PF) by some credit card companies has increased. This is because the risk of insolvency for card companies that have increased PF loans may materialize as the real estate market shows signs of decline. However, card company officials say, "Card companies cannot secure their future without finding new sources of revenue," adding, "We need to consider the contextual situation where long-term survival is at risk."

According to industry sources on the 24th, attention is focused on card companies that have recently entered the PF market. According to the office of Yoon Chang-hyun, a member of the People Power Party, as of March this year, the outstanding balance of real estate PF loans by card companies was 1.4758 trillion won, an increase of 343.6 billion won compared to the end of last year. Among card companies, only Lotte Card and Shinhan Card handle real estate PF, and these companies have seen a steep increase in outstanding balances.

No one is unaware that PF carries considerable risks due to the contraction of the real estate market. PF is a type of financing where money is lent based on the ‘future potential’ profits expected once apartments or buildings are completed and sold. It involves providing massive loans for projects that take a considerable amount of time. Since the loans are based on the land owned by the developer and a guarantee from the construction company promising completion, if the real estate market declines and the project does not proceed as expected, it becomes difficult to realize investment returns.

However, even card companies that have not ventured into PF investment say that one must look at "how the card industry is making money," implying that it is an unavoidable choice. One official stated, "Our company has not engaged in PF investment, but we have been cautious rather than reckless; it is a key business we have no choice but to consider." They collectively agreed that the card industry’s ‘normal business model’ is not functioning. The traditional business model for card companies is ‘merchant fees,’ but these fees have become so low that the revenue source has almost disappeared, creating a distorted situation.

Therefore, at present, card companies have no choice but to seek alternative revenue sources, and in that context, the consideration of PF?even if risky?must be understood. Another official said, "We are skeptical about the future of the card industry as a whole," adding, "Currently, companies are in a peculiar situation where they are not making profits from their core business and are earning money through ‘loans.’" He continued, "Card loans, revolving credit (a service that allows partial payment of credit card bills to be deferred to the next month), and auto installment financing have become the main sources of revenue," and frankly admitted, "I don’t know if this situation can be sustained across the entire card industry."

The minimal hope lies in adjusting merchant fees even slightly. Since February, the Financial Services Commission has been operating a ‘Card Fee Appropriate Cost System Improvement Task Force (TF)’ involving the card industry and merchant organizations. The TF is scheduled to operate until October, and despite slow progress, there is hope pinned on it. A card company employee said, "Considering all costs such as card recruitment expenses and service benefits, the fee area is almost at a loss," adding, "We can only hope that this will be properly reflected."

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