Lotte Card Avoids Accountability Structure Sanctions, but Faces Major Setbacks in Overall Management

Lotte Card, like IBK Industrial Bank, avoided the dishonor of becoming the first company in the industry to be sanctioned under the “accountability structure” system. This is because the cyber breach occurred before the implementation of the accountability structure system for card companies. However, there is growing criticism that the company has fallen into a comprehensive crisis, as it has failed to secure internal momentum such as performance growth, failed to find an external breakthrough through mergers and acquisitions (M&A), and now faces a cyber incident as well.

Cho Jwajin, CEO of Lotte Card, bowed his head in greeting as he attended a hearing on the large-scale hacking incident in telecommunications and finance held by the National Assembly's Science, Technology, Information and Broadcasting and Communications Committee on the 24th of last month. From the front row left, Yoon Jongha, Vice Chairman of MBK Partners, Cho Jwajin, CEO of Lotte Card, and Kim Youngseop, CEO of KT. 2025.9.24 Photo by Kim Hyunmin

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According to financial supervisory authorities on October 2, the Financial Supervisory Service has decided not to apply accountability structure sanctions to the Lotte Card hacking incident, as the system will only take effect in July next year. An official from the Financial Supervisory Service stated, “Specialized credit finance companies such as card companies are currently preparing for the implementation of the accountability structure system in July next year, and we plan to make improvements through a pilot operation in the first quarter of next year.” The official added, “It cannot be preemptively applied to Lotte Card alone.” Another official explained, “It is difficult to directly link general violations with the application of the accountability structure.”

Previously, IBK Industrial Bank nearly became the first bank to be stigmatized under the accountability structure system due to an improper loan incident, but ultimately avoided this outcome. Similarly, Lotte Card has also avoided the dishonor of being the first card company to be sanctioned.

However, Lotte Card has not been able to resolve its mounting management challenges. Above all, the response to the incident has not been smooth. The company has failed to clearly present follow-up measures such as identifying the hackers, preventing secondary damages, and outlining recurrence prevention plans, resulting in ongoing confusion.

Its performance momentum has also significantly weakened. Due to the financial authorities’ strengthened consumer protection policies, card companies across the industry are unable to actively pursue strategies such as raising annual fees or expanding credit sales. In addition, at the beginning of the year, Lotte Card suffered losses of approximately 150 billion won related to factoring receivables and Homeplus purchase-only cards.

According to the Financial Supervisory Service’s electronic disclosure system, Lotte Card’s quarterly net profit increased to 38 billion won in the second quarter and 39.7 billion won in the third quarter of last year, but decreased to 34.7 billion won in the fourth quarter. This year, net profit plummeted to 14.3 billion won in the first quarter and 27.3 billion won in the second quarter.

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The outlook for the business environment going forward is also grim. The industry estimates that the cost of reissuing and delivering cards alone will reach about 10 billion won, which is roughly half of the company’s quarterly net profit. Furthermore, considering that the company will need to allocate additional budget for information security, performance is expected to deteriorate further. Although the cost of dealing with the incident has not yet been reflected in the third quarter’s books, it is highly likely to be included in the year-end business report. In this case, a hit to performance is inevitable.

An even bigger problem is the decline in trust. Ongoing police investigations and the summons of CEO Cho Jwajin to the National Assembly’s audit have shaken consumer confidence and brand value. Securing a breakthrough through external investment has also become virtually impossible. MBK Partners, the largest shareholder, initially set the sale price for Lotte Card at over 3 trillion won in 2022, but with no buyers, the price was reduced to 2 trillion won this May. However, even at this price, no investors were found before the incident occurred. As a result, it appears that Lotte Card has no viable options other than selling at a bargain price or waiting for market conditions to improve. It is also expected that external financing will not be easy for the time being.

Currently, Lotte Card has effectively halted profitability enhancement strategies such as internal performance improvement or external M&A. The management’s position is that handling the aftermath of the incident is the top priority. CEO Cho emphasized, “This is not the time to consider the possibility of severe disciplinary action such as business suspension or fines by the financial authorities, or even stronger penalties or reprimands. Above all, resolving the damage is our most urgent task.”

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