Credit card firms exit ID verification services amid dominance of telecom-led authentication

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An increasing number of credit card companies are terminating card-based identity verification services due to low utilization rates, industry officials said Friday.

The decline in usage is largely attributed to the dominance of authentication methods led by the three major telecommunications companies in addition to the expansion of private certification systems, which have diminished the market share of card-based verification services.

KB Kookmin Card said it will discontinue its card-based identity verification service starting June 30, while Lotte Card will do so on July 31. BC Card already ceased offering the service in October 2023.

Identity verification services enable users to verify their identity using alternative authentication methods for activities such as online and mobile sign-ups, password recovery and financial transactions, without relying on their resident registration number.

The card industry had anticipated that these services could generate new sources of revenue, given the limitations on growth in their core business, particularly due to reduced card merchant fees.

The country's three major telecom companies — SK Telecom, KT and LG Uplus — reportedly receive a fee of approximately 30 won ($0.02) per transaction for identity verification services from their partners, with annual earnings totaling 20 to 30 billion won.

In contrast, card companies' identity verification services have experienced limited usage, resulting in poor profitability.

The three telecom firms have traditionally led identity verification services on the back of the simplicity of mobile phone-based authentication, which users prefer for its quick and easy process of confirming their identity.

On the other hand, card-based identity verification is considered more complicated, as users are required to input information such as a 16-digit card number, expiration date and security code.

While an alternative method involves entering a six-digit verification code in a smartphone app, many users still find this process less convenient than the phone number-based method.

Additionally, the rise of private certification providers, including banks and tech companies, has reduced the competitiveness of card-based identity verification services.

All four major commercial banks — KB Kookmin, Shinhan, Hana and Woori — currently issue private certificates, while NH NongHyup Bank and Industrial Bank of Korea were also designated as identity verification institutions this year.

Moreover, internet-only banks like Toss and KakaoBank, along with big tech companies such as Naver and Kakao, have also started issuing private certificates.

“Due to the low usage rate (of card-based identity verification services), it is not feasible to expect profitability relative to the cost of maintaining the service,” an official at one of the major card companies said.