Battle Gets Fiercer Over Card Market
By Na Jeong-ju
Banks have waged fiercer campaigns to raise their credit card market share amid forecasts that their margins will fall gradually due to increasing rivalry among banks and stronger competition from non-banking financial firms.
Major banks, such as Kookmin, Shinhan, Woori and Hana, have increased their investments in card affiliates in a bid to develop new cash cows amid the negative outlook for interest income and falling deposits.
``Independent card firms are facing unfavorable business conditions as firms affiliated with banks started aggressive marketing to increase their subscribers,'' the Seoul-based Korea Institute of Finance said in a recent report. ``They will find it much more difficult to improve their bottom lines because of stiffer competition with banks and a decrease in fee income.''
Many economists forecast South Korea may experience a big bang in the card industry like the United States. Bank-affiliated card firms, having stronger sales networks and more capital than independent issuers, may move to take over independent issuers if they fail to find ways of improving their profitability, they say.
``Banks' card market share may exceed 70 percent if Shinhan Financial Group, which merged LG Card, the country's No.1 card issuer, takes on more aggressive activities to increase its share,'' the think tank said.
Independent card issuers saw their profits decline by 45.2 percent in the third quarter from three months ago on increased corporate taxes and sluggish growth in card issuance, according to the Financial Supervisory Service.
The combined net profits of five card issuers unaffiliated with banks ― Lotte, BC, Samsung, Shinhan and Hyundai ― came to 449 billion won in the July-September period, falling from 818 billion won three months ago.
Samsung Card posted the largest drop in earnings among all card issuers, falling 73.1 percent to 78.8 billion won.
Shinhan Card, the country's largest card firm, also saw its net profits fall 36.8 percent to 247.8 billion won. Shinhan Financial Group took over LG Card and changed its name to Shinhan on Oct. 1.
Hyundai Card posted 52.3 billion won in net profits in the third quarter, down 27.1 percent from a quarter ago, while Lotte Card recorded a drop of 11.2 percent to 34 billion won. BC Card was the only card issuer that recorded an increase in net profits, with its earnings rising to 36 billion won from 23 billion won, the regulator said.
In contrast, bank-affiliated card firms have enjoyed an upswing in profits as well as subscribers.
Hana Bank said it plans to double its customer base to six million, and increase its card revenues by 35.5 percent to 14.3 trillion won. To achieve that goal, it has lowered fees for top-income earners and clients with good credit records.
It has also cut fees on installment payments by 3.3 percentage points for card users. In collaboration with Hana Global Marketing Group, which sells financial products developed by Hana Financial Group, the bank has begun diverse programs to boost its client base. Hana Bank, the country's fourth largest lender, is a subsidiary of Hana Financial Group.
``We've overhauled fee rates and plan to adopt new marketing strategies to double our card market share,'' a Hana official said. ``We will continue to adopt growth strategies, focusing on developing new business models and expanding our customer base.''
Woori Bank, the country's No.2 lender, also seeks to double its credit market share to 10 percent.
To improve profitability, the bank plans to increase its roles in the trading of stocks, bonds, foreign currencies and financial derivatives, according to Woori officials.
Woori, a state-owned lender, has been focusing on organic growth since the government banned it from participating in acquisition deals early this year. It sought to participate in the bidding for LG Card, the country's top credit card firm, but dropped out in the face of government opposition.
Woori Chairman Bahk Byong-won earlier said the lender would focus on expanding its share of the credit card market to create synergy with its banking business. He said Woori's growth-oriented strategies will continue until it tops Kookmin Bank as Korea's largest financial services company.
Kookmin Bank, the country's top lender, signed advertising contracts with Korean pop stars, such as Rain and BoA, who are popular among teens across Asia, for its credit card business. The contracts are also in line with the bank's plan to advance into developing financial markets in Asia.
The increasing competition among banks, however, is raising concerns that credit default risks for individuals may rise again.
The FSS recently said in a report that some card firms have eased their screening of card issuance to increase their client bases.
``Card firms have staged aggressive marketing to attract new customers amid falling credit default rates,'' an FSS official said. ``However, credit default rates may rise again if the economy slows down. Card firms may face greater default risks.''
The number of credit defaulters soared from 2.63 million at the end of 2002 to 3.72 million at the end of 2003 after the burst of the credit bubble that year. Since then, the number has fallen as bank-associated card units struggled to lower default rates through massive debt write-offs and tightened screening on card issuance.
The number of credit delinquents has dropped to the level of the pre-credit card bubble in late 2002 as many have recovered their credit worthiness through state-run debt workout programs.
According to the Ministry of Finance and Economy, credit defaulters stood at 2.7 million as of the end of June, down 91,000 from late last year. The number peaked at 3.72 million in 2003, sharply up from 2.63 million in 2002. Then, it gradually fell to 3.61 million in 2004, 2.97 million in 2005 and 2.79 million last year.
The ratio of credit delinquents to the economically active population came to 7.7 percent in June as peopled aged 15 to 64 totaled 34.9 million. It is down from 8.6 percent in 2005 and 10.9 percent in 2002.