Amid Rising Funding Costs, Card Industry Focuses on High-Quality Customers and 'Premium' Products

Weakened Expectations for Rate Cuts... Pressure on Card Bond Rates
Card Loan Rates Drop Amid Shift Toward High-Quality Customers
Targeting the Profitable 'Quasi-Premium' Market

As card bond rates remain fixed in the mid-3% range, the funding cost burden for credit card companies is increasing. In response, the credit card industry is focusing on operating card loans for high-quality customers while also pursuing a business strategy to expand the share of highly profitable 'quasi-premium' products.

According to Korea Asset Pricing on February 3, the three-year card bond (AA+) rate stood at 3.57% at the end of last month. Card bond rates, which remained in the high 2% range until October last year, entered the 3% range in November and have continued to rise since. Recently, the Bank of Korea signaled the end of the base rate cut cycle, so the funding cost burden for card companies has not been alleviated.

Unlike banks, card companies cannot accept deposits and therefore rely on bond issuance for most of their funding. In this structure, when card bond rates rise, card companies come under pressure to adjust their business strategies.

Card Loans Focused on High-Quality Customers…Expansion of 'Quasi-Premium' Products

Amid rising funding costs, card companies are strengthening their strategy to secure high-quality customers for card loans. According to the Credit Finance Association, as of the end of last year, the average interest rate for card loans at the eight major dedicated card companies (Samsung, Shinhan, KB Kookmin, Hyundai, Lotte, Hana, Woori, and BC) was 13.93%. This represents a 0.8 percentage point decrease from the peak of 14.75% in March last year, when the average card loan interest rate was at its highest. At that time, three card companies had average card loan interest rates exceeding 15%, but by the end of the year, all of them had fallen below the 14% range.

Despite the fact that card bond rates rose by more than 70 basis points (1bp=0.01 percentage point) within two months after hitting their lowest point in October last year, card companies did not raise card loan interest rates across the board. Instead, they partially adjusted interest rates for certain credit rating segments and reduced the issuance of loans to low-credit borrowers, thereby lowering the overall average interest rate. This is interpreted as a response to the government's lending regulations, which have led to a contraction in card loan issuance and prompted card companies to restructure their core profit source—card loans—around high-quality customers. Previously, financial authorities, through the June 27 household debt management policy, limited unsecured loan limits to within 100% of annual income and included card loans as a regulated category.

In addition, some card companies are discontinuing cards with no annual fee or no previous month’s spending requirements, and are reorganizing their product lineups to focus on 'quasi-premium' cards with annual fees of 50,000 won or more. In fact, last year, the eight major domestic card companies discontinued a total of 525 card types (421 credit cards and 104 debit cards). A credit card industry official said, "Recently, card companies have significantly strengthened the competitiveness of their premium card products," adding, "They are developing new products that fill the gap between premium cards with annual fees of 150,000 won or more and basic cards with annual fees under 30,000 won, thereby increasing consumer choices and moving away from the previously polarized card market." The official also noted, "In particular, benefits such as airport lounge access and parking services, previously reserved for premium card members, are now being offered with cards in the mid-range annual fee segment."

This content was produced with the assistance of AI translation services.