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| Then Shinhan Card CEO Wi Sung-ho, third from left, poses with Indomobil CEO Jusak Kertowidjojo, third from right, during a launch ceremony of Shinhan Indo Finance in Jakarta, Indonesia, in this December 2015 file photo. Courtesy of Shinhan Card |
By Park Jae-hyuk
Korean card firms are struggling to stay afloat in the Indonesian market, where they entered in 2015 under the guidance of their former CEOs, according to industry officials, Monday.
Unlike their subsidiaries in other Southeast Asian countries, their Indonesian entities have faced difficulties in generating profits, due to Indonesian government regulations and its people not being familiar with credit card usage.
Shinhan Indo Finance, for example, suffered a 1.64 billion won ($1.3 million) loss during the first half of 2019.
Shinhan Card's Indonesian subsidiary has seen only a growing deficit since it was established in December 2015 as a joint venture between Shinhan Financial Group's card issuing unit and Indonesian conglomerate Salim Group's carmaker unit Indomobil.
Shinhan Card holds a 50 percent plus one share in the joint venture.
The Indonesian entity suffered a 3.3 billion won loss in 2018, 30.1 billion won in 2017 and 17 billion won in 2016.
The company, which had a net asset of 15.5 billion won at the time of its establishment, is facing a capital impairment as well.
Its net asset still stood at negative 9.7 billion won in June.
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| Then BC Card CEO Suh Joon-hee, right, holds a written contract with then Bank Mandiri CEO Budi Gunadi Sadikin, after signing a joint venture agreement at the bank's headquarters in Jakarta, Indonesia, in this September 2015 file photo. / Courtesy of BC Card |
BC Card is another Korean card issuer that has faced setbacks in its Indonesian business.
Through its subsidiary PT BC Card Asia Pacific, the card firm signed a memorandum of understanding with Bank Mandiri in September 2014 and established a joint venture named Mitra Transaksi Indonesia (MTI) with the Indonesian bank in November 2016.
MTI has operated as a payment processor.
BC Card Asia Pacific, which held a 49 percent stake in the joint venture, financed 4.9 billion rupiah ($343,000) at the time of its establishment.
In 2017, it injected an additional 5.2 billion won into the Indonesian entity.
However, MTI suffered a 9.3 billion won loss in 2017.
BC Card Asia Pacific also faced a 5.5 billion won loss that year.
Although it turned a profit in the first quarter of 2019, the turnaround is attributed to the disposal of its entire stake in MTI, following the Indonesian government's decision to revise its law to ban foreign companies from operating payment networks in the country.
Industry officials said the card issuers were too hasty in entering the Indonesian market.
According to them, Indonesia has a low level of credit card adoption, because only customers with relatively high incomes are eligible for credit cards.
The Indonesian government decree, which took effect in May 2016, also pushed its people back to cash as it required credit card providers to submit transaction details ― including customer identity ― to the Indonesian Tax Office.
Moreover, a growing number of Indonesians are switching from cash to QR code-based digital wallets, not credit cards, according to the Korea Trade-Investment Promotion Agency (KOTRA).
"Indonesian merchants prefer QR code-based digital wallets to credit cards, because it costs less than installing credit card terminals," a KOTRA official said.
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