Card industry facing uphill competition

By Kang Seung-woo

Since the major credit card fiasco in 2003, the local card industry has remained relatively low key as many financial groups have placed their card operations under their umbrella in order to fix their balance sheets and avoid excess competition.

The landscape for the industry, however, is expected to change down the road, with major financial groups now moving to spin off their card divisions in a bid to strengthen the plastic-issuing credit business.

KB Financial Group announced on July 30 that it will separate the credit card business from its banking unit, while other holding firms and financial institutions are seriously considering entering the sector which is already nearing saturation.

However, their entry into the card business has been fueling concerns over the possible reoccurrence of the credit-card crisis of 2003, which involved more than three million people defaulting on their credit cards.

The announcement of the nation’s largest financial company by assets has kept rivals on their toes.

According to the industry, Shinhan Card was the runaway leader in market share in the second quarter with 24.8 percent, followed by Hyundai Card (15.4 percent), KB Card (13.4 percent) and Samsung Card (12.7 percent).

But KB Card’s separation, expected to take place in the first quarter in 2011, will cause a sea of change in the standings thanks to Kookmin Bank’s strong network.

KB was merged into the bank after the credit-card fiasco in September 2003.

Woori Financial Group, under the privatization process, is also on the list to branch off its Woori Card.

Its CEO Lee Pal-seung told a local media in March that he would seek to establish a credit card unit in the latter part of this year.

Last November, Hana Financial Group, Korea’s No. 4 financial services firm, separated its card operation from Hana Bank to set up Hana SK Card and it turned out to be a success.

Since the outgrowth membership has increased by 200,000 to 6.20 million as of the end of the second quarter.

State-run financial companies are also preparing to launch an independent credit-card business.

The National Agricultural Cooperative Federation, or Nonghyup, plans to separate its credit-card division when it transforms its financial service operations into a new financial holding company.

The federation issued last year its own brand and has lured approximate 2.7 million members.

“Nonghyup will focus on a new growth engine like credit-card business in the second half,” Kim Tae-young, chief of the federation’s credit business, said in a recent media interview.

In addition, Korea Development Bank (KDB) and the Korea Post announced in June their plans to enter the credit-card sector.

The fast-rising spinoff by financial institutions is due to its upside in the business.

As card issuers cannot take on aggressive marketing strategies under defensive-oriented banks, they are in a hurry to come up with independent credit-card units.

“There will be fiercer competition because each player can take on a variety of marketing strategies coming out of conservative banks’ marketing,” said Choi Chung-uk, an analyst at Daishin Securities.

“Thanks to its low loan-loss provision and high profitability, they are turning their sights to the credit-card field.”

Shinhan Card, which was spun off from its banking unit in June 2002, posted a net profit of 856.8 billion won last year, compared to 748.9 billion won ($644.80 million) by Shinhan Bank.

KB Card contributed to Kookmin Bank reporting 173.5 billion won in operating profit in the first half of this year.

As a result, a few lenders have even hired on-the-street street recruiters to lure customers.

Industrial Bank of Korea (IBK) has decided to employ up to 50 brokers in its 15 business departments.

“There is a limit for employees in branches to attract new customers. It is part of an aggressive marketing scheme,” an IBK official said.

Some concern that the overheating competition can result in another credit-card fiasco, but economists rule out the possibility.

“In 2003, cash-advance and card-loan services were the main culprits of the crisis. But each company will focus on credit sales, so there will be no problem like previously,” Choi said.