Credit card firms face mounting pressure amid fee cuts, fintech's rise

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Credit card companies are struggling amid a prolonged industry downturn, company officials said Wednesday.

Government-led policies aimed at lowering transaction fees have put mounting pressure on card issuers' profitability, while the rise of online payment platforms is accelerating the reshaping of the payment ecosystem, they said.

In addition, the firms' ability to offset losses through lending products such as card loans is weakening due to cardholders' deteriorating financial soundness.

These challenges are forcing the companies to undergo structural transformation and business reorganization in order to survive.

Since the 2012 revision of the Specialized Credit Finance Business Act, financial authorities have recalculated the appropriate cost of credit card processing fees every three years, based on factors such as risk management, administrative expenses and marketing.

These recalculations have consistently led to fee cuts, resulting in a steady decline in the share of merchant fee revenue in credit card firms' total income and weakening the core competitiveness of their primary business.

According to data from the Financial Supervisory Service (FSS), the eight major credit card companies — Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Hana, Woori and BC Card — earned a combined 8.19 trillion won ($6 billion) in merchant fee revenue in 2024.

While the amount increased slightly from the previous year, its share of total revenue fell to 29 percent from 30.2 percent in 2023.

The proportion has been declining for three consecutive years, dropping from 35.5 percent in 2021 to below 30 percent for the first time in 2024.

The rise of fintech companies is also emerging as a major threat, as the rapid growth of simple payment services continues to erode credit card firms' market share.

According to the Bank of Korea's report on payment trends for the first half of 2024, daily payments made via mobile and other devices rose 4.1 percent year-on-year to 1.5 trillion won, while physical card payments fell 3.4 percent to 1.4 trillion won.

Among simple payment services, the share of users relying on services provided by fintech firms expanded to 69 percent, while the share using those offered by credit card companies declined to 31 percent.

"Mobile device payments have become commonplace, and the growing use of big tech payment networks is now a clear trend. Although card companies are launching various services, they seem to lack a distinct advantage in terms of payment convenience and accessibility," an industry insider said.

Amid these challenges, credit card companies are tightening management by cutting costs.

According to the FSS data, the eight major card companies spent 8.48 trillion won on card-related expenses in 2024, down 2.79 percent from the previous year, marking the first decline in five years. These expenses include recruitment costs, compensation fees for member and merchant losses, and cash service handling fees.

The cost-cutting trend is also reflected in workforce restructuring.

Shinhan Card's headquarters in Seoul / Courtesy of Shinhan Card

Earlier in the day, Shinhan Card said it carried out organizational restructuring, reducing team leader positions by about 28 percent through team mergers and consolidation.

Despite union opposition calling it a forced restructuring, the company pressed ahead with workforce cuts to reduce costs and boost productivity.

Team leaders whose positions were eliminated will return to regular team roles and are expected to be prime candidates for voluntary retirement. The company said it will start accepting retirement applications on Thursday.

"The restructuring aims to strategically reshape the business for sustainable growth, enabling the company to quickly adapt to changing conditions and strengthen long-term competitiveness," a Shinhan Card official said.

The firm is accelerating its organizational slimming after losing the industry-leading spot it held for several years to Samsung Card.

Shinhan Card recorded a net profit of 572 billion won last year, down 7.8 percent from the previous year, while Samsung Card regained the top spot with a net profit of 666 billion won.

In the first quarter of this year, Samsung Card also outperformed Shinhan Card by 48.7 billion won, posting a net profit of 184 billion won.