Card firms slashing customer benefits to cut costs

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By Jhoo Dong-chan

Credit card firms had offered various benefits to attract more customers for years, but now such benefits are no more after they suffered deteriorating earnings last year and decided to get rid of the card benefits.

Card firms said they are discontinuing old credit card products, but market observers say their move aims to cut marketing costs to maintain profitability. A reduction in marketing costs means fewer card benefits such as interest-free installment payments and loyalty point service.

According to industry sources, KB Kookmin Card discontinued its 20 credit card products as of Jan. 31. Also, existing cardholders of the 20 products are not allowed to renew their cards on expiration.

The decision includes the firm's popular card products that offered customer benefits in phone bill, education and gas charge.

Following KB Kookmin Card's lead, Shinhan Card discontinued its three popular card products while Hyundai Card got rid of the Hi-Mart Mobile M Edition credit card as of Feb. 12.

Credit card firms claim their moves are nothing to do with their deteriorating profitability.

“Credit card firms discontinue unpopular card products every year. The move is just part of our business routine,” a Hyundai Card official said.

Market observers say, however, discontinued products weren't unpopular and it's unprecedented for domestic card firms to have discontinued so many of their products simultaneously.

“It's because of the government's move to cut credit card transaction fees,” an industry observer said.

“Due to the nation's sluggish economy, consumption is being discouraged rapidly. And the government's pressure to cut the transaction fees is dealing a blow to their profitability.”

In November, the Financial Services Commission (FSC) and lawmakers from the ruling Democratic Party of Korea announced their decision to cut credit card transaction fees. They claimed this would save the self-employed and small businesses around 1 trillion won ($1.2 billion) in costs every year.

Under the cut, which started taking effect in January 2019, small business owners with annual earnings of 500 million won to 1 billion won will have their transaction fees reduced to 1.4 percent from 2.05 percent. Those that earn between 1 billion won and 3 billion won will be charged 1.6 percent, down from 2.21 percent.

“Under the card fee transaction fee structure, card firms have no option but to downsize customer benefits,” said a credit card firm official who asked not to be named.

“Big players can survive, but small firms will have no option but to restructure themselves. This will include massive layoffs. The government should look at things from a long-term perspective.”

Customers display their complaints claiming the tug-of-war between card firms and government burdens them.

“I do not understand why customers need to bear the burden of the reduced card transaction fees. It will greatly reduce my purchasing power," said a 36-year-old computer programmer surnamed Ahn who lives in Songpa-gu, Seoul. "I often use the credit card interest-free installment service. It has really helped me buy expensive things. It's so regrettable.”