Korean credit card companies are shifting to alternative revenue streams, including card loans and installment fees, as merchant fee income plummets due to the economic downturn and struggling self-employed businesses.

According to data from the Financial Supervisory Service obtained by Democratic Party Representative Jo Seoung-lae on Wednesday, merchant fees earned by credit card companies have dropped by 22.5 percent over the past decade, falling to 8.32 trillion won (about $6 billion) in 2023 from 10.73 trillion won in 2015.

Merchant fees peaked at 11.68 trillion won in 2017 but have steadily declined since then. A brief recovery in card payments at large online shopping malls during the Covid-19 pandemic failed to sustain the momentum.

The decline in merchant fee revenue is largely attributed to the recalculation system for eligible costs, which was introduced in 2012. This system mandates a cost analysis every three years to adjust fees for preferred merchants, and fee rates have been reduced in all four recalculations since its implementation. Fees for small merchants with annual sales under 300 million won have dropped from 2.3 percent to 0.5 percent, for instance, while those for merchants with annual sales between 300 million and 3 billion won have fallen from 3.6 percent to between 1.1 and 1.5 percent.

The credit card industry is now calling for the recalculation cycle to be extended to five years and is increasingly relying on card loans and annual fees to offset declining profits in the payment sector. Other revenue streams are on the rise as well with installment fees, for example, growing from 1.32 trillion won in 2015 to 2.25 trillion won in 2021 to hit 3.17 trillion won in 2023.

Card loan revenue has also seen steady growth, rising from 2.93 trillion won in 2015 to 4.53 trillion won in 2022. The balance of card loans stood at 41.83 trillion won as of August 2024, up 3.07 trillion won from the previous year’s 38.76 trillion won.

Annual fees are also on the rise as credit card companies discontinue older cards and launch new ones. Hyundai Card’s premium flagship Purple Card, for instance, saw its annual fee rise from 600,000 won to 800,000 won when rebranded as Purple Oze, and its successor, The Purple, now has an annual fee of 1 million won.

Consequently, revenue from annual fees has been steadily increasing. Annual fee income was just 686.7 billion won in 2015 but surpassed 1 trillion won in 2020 to hit 1.33 trillion won in 2023, a 93.8 percent increase. Credit card companies have been phasing out cards with no spending requirements and introducing premium cards with higher annual fees. According to credit card platform CardGorilla, the average annual fee for newly released domestic and international credit cards rose 35.7 percent from 83,453 won in the first half of 2023 to 113,225 won in the first half of 2024.

Credit card companies are also focusing on diversifying their business models, with the data industry emerging as a key area of interest. By leveraging vast amounts of transaction data from their large customer bases, they are collecting and processing diverse types of data to explore new revenue opportunities across various industries.

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