By Kang Seung-woo
Local credit card companies are expected to bask in record profits this year on the strength of steadily growing commission profits, the financial watchdog said on Sunday.
According to the Financial Supervisory Service (FSS), the credit card industry raked in 701.6 billion won in net profits in the first half of this year, down from 861.7 billion won earned last year.
Although the figure marks a decrease, a closer look reveals practical growth.
Due to new accounting standards, card companies had to set aside 500 billion won in loan-loss provisions of which they reserved 200 billion won in the first six months of last year.
Considering the increased bad-debt provision, the actual net income climbed by 140 billion won.
The net profit of the credit card industry has rising steadily after reaping 1.66 trillion won in 2008 and 1.86 trillion won in 2009.
Among the gains of a card firm, card fees account for about 60 percent to 70 percent and the commission surges year after year.
In 2008, it tallied 5.58 trillion won, followed by 6.12 trillion won in 2009 and 7.19 trillion won in 2010 before hitting 4.95 trillion won as of the end of the first half of this year.
Considering a huge amount of card payments are made in the second half of the year thanks to summer vacation and the Chuseok holiday, the profits from commission are projected to reach a record mid-8 trillion won mark.
The record-setting forecast comes as small retailers are pushing card companies to reduce fees.
According to the Credit Finance Association (CFA), proprietors of restaurants have to pay 2.1 percent to 2.7 percent of their credit card sales as commission, while golf course operators, classified as being in a luxury business, only pay 1.5 percent to 3.3 percent of their credit card sales. In the case of large discount stores and gas stations, they pay 1.6 percent to 1.9 percent and 1.5 percent, respectively.
The Korea Restaurant Association (KRA), complaining of the surcharges aims to lower the commission to 1.5 percent. It will hold a meeting in Yeouido, Seoul, on Tuesday to protest the high rate and to demand a cut.
Biting criticism is apt to push the card industry to slightly reduce the rate.
“Due to heavy pressure to cut the commission for small merchants, we are considering the demand. A markdown of about 0.2 percentage points is gaining momentum,” said an official of the card industry.
Another measure the sector is considering is an increase in the number of affiliates that benefit from the preferential commission rate from 58 percent to 70 percent.