The commission fees from merchants, which are the largest revenue source for KARD companies, have been found to be decreasing. This is because KARD companies lowered card commission fees for small and medium-sized merchants due to measures from financial authorities. Additionally, as the government pressures KARD companies to further reduce fees, the burden on KARD companies is expected to increase. The demand for KARD loans has also decreased due to the recently implemented three-stage debt service repayment ratio (DSR), leading to continued deterioration in the profitability of KARD companies.
According to a report from NICE Investors Service on the 10th, the merchant commission revenue of seven major credit card companies (Woori, KB, Lotte, Samsung, Shinhan, Hana, Hyundai) in the first quarter of this year was 1.2741 trillion won, a 7.1% decrease compared to the same period last year (1.3713 trillion won). In terms of the first quarter, the proportion of merchant commission fees was the largest at 27.4% of the total KARD revenue of 4.6551 trillion won from the seven companies.
The reduction in merchant commission fees by KARD companies is due to the need to provide preferential commission rates to small and medium-sized merchants. The Financial Services Commission applied preferential commission rates to 3,059,000 credit card merchants, 1,810,000 lower-tier merchants of payment service providers, and 166,000 taxi operators starting in February of this year. The existing card commission fees for merchants with sales between 300 million won and 3 billion won have been lowered by 0.05% to 0.1% compared to existing rates based on various intervals.
The fee structure for general merchants (those with annual sales exceeding 3 billion won) has not yet been announced. However, as the overall trend is to lower fees, the KARD industry expects it will not be easy to raise fees for general merchants.
During the same period, KARD loan revenue, which accounted for the second highest proportion of total KARD revenue, increased by 11.6% to 1.323 trillion won. As KARD companies' commission revenue declined, they have focused on expanding KARD loan operations.
However, with the implementation of the three-stage DSR this month, expanding KARD loan revenue is also expected to become more difficult. The DSR is the ratio of annual principal and interest repayment to annual income, which is a key criterion for determining loan limits. The 'stress DSR' applies a higher 'stress interest rate' based on the assumption of rising interest rates, calculating loan limits more conservatively. Under the newly implemented DSR stage 3 this month, a stress interest rate of 1.5% will be applied immediately to new KARD loans, regardless of the amount. As loan limits shrink, a significant decrease in consumers utilizing KARD loans is anticipated.
With additional pressure from the government to reduce fees, the profitability of KARD companies is expected to further decline. The Ministry of Interior and Safety demanded that KARD companies lower their merchant commission rates further ahead of the implementation of a 12 trillion won 'living recovery consumption coupon,' which is a major pledge of this government. The consumption coupons can only be used at business sites with annual sales of 300 million won or less. Most merchants eligible to use the consumption coupons already have preferential commission rates applied, and there are concerns that if further reductions are made, KARD companies could incur losses.
A KARD industry official noted, 'Given that KARD companies do not have deposit functions, it is difficult to expand new revenue sources, leading them to initiate cost reductions like restructuring.'