Last year in July, the Cards
International Country Survey on Korea had found that
competition was heating up in the South Korean cards industry as a
number of joint ventures and spin-offs were changing the landscape
of the market.
Now competition is set to reach boiling point:
Korea’s National Assembly has unveiled plans to revise the Credit
Finance Business Act, which directly affects the credit cards
sector.
Assembly’s National Policy Committee passed a
bill that empowers the Financial Services Commission (FSC) to set
credit card commission rates.
This follows a warning from March 2011, when
the head of the Financial Supervisory Service (FSS) warned the
industry that the levels of competition could mean that risk
controls are overlooked as players seek to win market share and
entice consumers with compelling – but unsustainable – offers of
credit.
The FSC’s proposed regulation is subject to
the approval of the Assembly’s plenary session.
With this initiative, the Korean parliament
faces the opposition of the government, the credit card industry
and the FSC itself.

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By GlobalData“Making the government to set the commission
rates goes against market principles”, chief of FSC Kim Seok-Dong
told the Korea Herald this week.
The Credit Finance Association, the trade body
of the credit card’s industry, based its opposition on the grounds
that the proposed regulation is unconstitutional.
Merchant uprising
Behind the move to revise the bill is said to
be the pressure of restaurant owners.
In October last year, thousands of restaurant
merchants protested extensively against the commission rates their
hospitality businesses have to bear.
Credit cards are widely used by Korean
consumers. In a country where it is easier to get loans from credit
card firms than from banks, 91% of the card payments were made with
credit cards, according to data by the FSC.
In 2011 Korea registered the highest rate of
credit card spending since 2003, year in which the credit card
bubble burst in the country.
Last year, Koreans’ plastic money spent
reached KRW540tr ($478.5tr), up from KRW493.7tr in the previous
year, according to the Bank of Korea.
South Korea is one of the largest cards
markets in the world, with more than 115m cards in issue. In 2010,
card issuers’ earning rose by 46% year-on-year to KRW2.7tr.
Although the market bounced back after the
burst credit bubble, the rise of alternative payment service
providers keeps the traditional financial sector on its toes.
Read the full Cards International
Korea Country Survey here.