By Kang Seung-woo
Staff reporter
The Korea Development Bank (KDB) and Korea Post are bracing for a fierce battle after announcing that they are both launching credit-card businesses.
However, despite a diversity of predictions on their future performances in the new industry, market analysts say that consumers are expected to benefit from a more crowded field of credit card companies.
"The arrival of new players in the industry means more choices and more opportunities for consumers," Daewoo Securities senior analyst Ku Yong-uk said.
"They will be more open to enjoy a variety of services from the card issuers. Consumers have nothing to lose."
Samsung Economic Research Institute (SERI) banking analyst Kim Jae-woo was in line with Ku in terms of growing benefits for consumers.
"A battle between credit-card firms will lead to an intensifying price competition," he said. "If the competition gets fiercer firms are expected to bring down credit-card fees for affiliates and private users will be able to savor more options."
Late last month, the state-run KDB and the nation's postal service monopoly announced their plan to enter the credit-card sector which is already nearing saturation.
"We want to provide financial benefits for the lower middle class in farming and fishing villages in terms of public service," a Korea Post official said. "We plan to take advantage of the nationwide network."
KDB said in a statement, "Internally, the bank is studying plans to enter the credit card business," adding that it has yet to start consultations with the government on the matter.
However, their rush into the credit-card business has been fueling concerns over a reoccurrence of the credit-card crisis in 2002, which involved more than three million people defaulting on their credit cards.
However, most economists say that there is a low chance for another fiasco to take place again.
"In 2002, the companies randomly issued credit cards, but it is improbable now because each firm is outfitted with solid credit risk management strategies," Ku said.
"At that time, cash-advance services was the main problem, but soon-to-be-newly-entered plastic issuers are forecast to focus on credit sales rather than cash-advance services or card-loan businesses," said Choi Jung-wook, an analyst at Daishin Securities.
Meanwhile, there are rising speculations that several card issuers will be spun off from their parent banks and this is due mainly to an upside in the sector.
Euh Yoon-dae, new chairman of KB Financial Group, has talked about separating the bank from the card issuer, while Woori Card is also on the list to be spun off.
The credit-card market is valued at over 400 trillion won and the top five card issuers earn a net profit of over 1 trillion every year.
"Currently, banks are seeing a big source of potential income in the card business," Kim said.