Card issuers turn to small-business lending as consumer loan curbs squeeze growth

A food alley in downtown Seoul / Newsis

As Korea’s financial authorities continue tightening their grip on household debt, card issuers are looking beyond personal card loans for growth, with many expanding into lending for sole proprietors and small-business owners, according to industry officials Thursday.

In recent years, card companies have relied on card loans to offset slowing growth in their transaction fee incomes. Carrying higher interest rates than bank loans but requiring no collateral, these have become a popular source of quick funding for borrowers with limited access to mainstream credit.

That appeal has also made them a target of regulators. Authorities regard card loans as a significant contributor to household leverage and have sought to restrain their growth as part of a broader campaign to curb debt accumulation and cool speculative demand in the property market.

Pressure on the sector intensified this week after several major card issuers exceeded regulatory targets for outstanding card loan balances. The Financial Supervisory Service summoned the companies on Monday and urged them to strengthen internal risk controls.

In response, the industry has started pulling back. KB Kookmin Card, for example, temporarily removed its consumer loan products from major loan comparison platforms to limit inflows of new customers.

With regulators tightening the screws on household lending, card issuers are turning to the sole proprietor segment as one of the few remaining avenues for growth.

Samsung Card recently joined Shinhan, KB Kookmin, Hyundai, Woori and BC Card in offering these products, while Hana Card and Lotte Card are reviewing potential market entries.

The shift aligns with the government’s broader push for inclusive finance, which aims to expand access to funding for small businesses and financially underserved borrowers.

“Loans to sole proprietors fall within the scope of both inclusive and productive finance, so expanding this business is viewed positively from the government’s perspective as well,” an official at a card company active in the market said. “We're broadening our offerings for small-business owners who often find it difficult to secure financing from banks.”

Commercial considerations, however, remain the primary motivation.

“Regulatory controls now extend not only to card loans but also to cash advances, leaving us with very little room to grow,” another industry official said. “There is limited scope to expand marketing or raise credit limits. That’s one of the main reasons we’re placing greater emphasis on lending to sole proprietors.”

Unlike household borrowing, business loans are not subject to debt service ratio regulations. These products also play to card companies’ strengths. Issuers can draw on their own transaction data — including merchant sales records and card spending histories — to assess a borrower’s repayment capacity.

The opportunity is not without risks. Because the borrower base includes a relatively large share of lower-credit customers and microbusiness operators, delinquency rates can climb quickly when economic conditions weaken and consumer spending subdues.

“There is certainly delinquency risk, but each card company already has its own credit assessment model. The key is to keep refining those models and closely monitoring the portfolio,” the official added. “But concerns about delinquencies alone cannot be a reason to avoid the market altogether. After all, we still need to generate returns.”