Payment Revolving Increased for 6 Consecutive Months, Growth Rate Slows Down

Growth Rate 1.9%... Slight Decrease Compared to Previous Month

[Image source=Yonhap News]

[Asia Economy Reporter Yu Je-hoon] While the balance of credit card companies' revolving payment service (revolving) has been increasing every month, the rate of increase has slowed down. It is also expected that the growth rate will shrink further once the regulatory authorities' revolving regulations, scheduled to be implemented next month, are fully enforced.

According to the Credit Finance Association on the 18th, the balance of revolving payments for settlement as of the end of last month at seven major domestic credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) was recorded at 6.9378 trillion KRW. This is an increase of about 127.8 billion KRW compared to the previous month, marking six consecutive months of growth since April.

However, the rate of increase has somewhat declined. In terms of month-on-month growth rate, last month saw a 1.9% (127.8 billion KRW) increase, which was lower than the 2.2% (144.8 billion KRW) increase in August. Looking at the growth rates of revolving payments at major card companies this year, since recording -2.2% in March, the rates were ▲1.6% in April ▲2.3% in May ▲2.0% in June ▲1.8% in July ▲2.2% in August, showing an increase rate around 2%.

The Credit Finance Association stated, "Although the total amount is decreasing due to increased credit sales and expanded consumption, a trend of gradual decline is observed," adding, "It appears that the industry's reduction in marketing related to revolving services, such as refraining from telemarketing (TM) sales as recommended by the authorities, has had an impact."

Revolving is a financial service where a portion of the credit card payment is paid first, and the remaining amount is deferred to the next month. Since card loans, which were a major source of revenue for card companies, have been included in loan regulations, card companies have compensated for profitability by expanding cash service and revolving assets, which were outside the scope of regulation.

The revolving service has the advantage for credit card users of securing additional liquidity when cash on hand is insufficient, but it also has the significant disadvantage of being a high-interest product that exceeds long-term card loans (card loans). As of the end of August, the average interest rate for revolving services at the seven card companies was 16.66%, which is 3.44 percentage points higher than the average interest rate for long-term card loans (13.22%) during the same period. If the deferred amount is not repaid within a short period, the burden can increase sharply.

In particular, a significant portion of revolving service users tend to have low credit ratings. According to the Credit Finance Association, among revolving payment users, the proportion of customers who are charged interest rates close to the legal maximum rate (20%), between 18-20%, ranges from 17% to 62% depending on the company, with an average proportion of 40.1%.

Some predict that the scale of revolving services may continue to increase as consumers' ability to pay deteriorates due to the economic downturn. A source from the credit card industry said, "Despite card companies reducing related marketing in the second half of the year, the overall balance is still increasing," adding, "This can be seen as a natural situation due to the overall increase in credit sales, but it is also likely that customers with tighter budgets are actively using revolving services."

The industry expects that the balance of revolving payments will stabilize downward as the regulatory authorities plan to fully implement strengthened regulations related to revolving from November. Specifically, these include ▲establishment of a revolving explanation document ▲introduction of customized explanation procedures by channel (face-to-face, telemarketing) ▲introduction of happy calls for revolving contracts via telemarketing targeting elderly customers ▲public disclosure of comparisons between loan product interest rates and revolving fees ▲differentiation of minimum payment ratios.

A representative from the Credit Finance Research Institute said, "Even if the economy is in recession, it is not easy for individuals to drastically reduce consumption, and since loans in the financial market are tightening, the demand for revolving payment services is likely to increase," adding, "However, since the authorities are preparing various regulations and the industry is likely to slow down the expansion of revolving assets to avoid increasing risks, it is highly likely that the overall trend will stabilize downward."

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