Card Firms Face Profit Squeeze as Credit Card Use Declines in Korea

South Korean credit card companies are facing increasing pressure as consumer payment habits shift and profitability declines, according to recent reports. While overall consumer spending remains stable, a move away from credit cards towards alternatives like debit cards is creating structural challenges for the industry.

Data from late 2025 shows total card approvals reached 325 trillion Korean Won, a 4.9% increase year-over-year. However, the composition of that spending is changing. Debit card approvals grew at a rate of 5.4%, outpacing the 3.9% growth seen in credit card approvals. The share of spending attributed to credit cards fell from 78.5% to 77.8%, while debit card share edged up from 20.7% to 20.8%.

The shift towards debit cards isn’t necessarily driven by increased debit card issuance, but rather by existing cardholders utilizing them more frequently. The number of debit cards issued remained relatively stable throughout last year, but transaction volume increased steadily each quarter, indicating a behavioral change among consumers.

Compounding the issue is a rise in dormant credit cards. As of the end of last year, BC Card reported a dormancy rate of 48.44% – nearly half of its issued credit cards were inactive. Hana Card and Lotte Card reported dormancy rates of 18.38% and 15.60% respectively, with all eight major card companies exhibiting double-digit dormancy rates. This signifies a growing number of consumers holding credit cards but choosing not to use them.

Analysts attribute this trend to economic uncertainty and increased caution regarding debt. Consumers are becoming more mindful of interest charges and overall household debt, leading them to consciously reduce their reliance on credit. This is particularly evident in a climate of persistent economic headwinds.

This evolving landscape presents significant structural headwinds for credit card companies. Dormant cards represent a continuous cost – maintaining systems and infrastructure – without generating revenue. While debit cards offer a lower cost structure due to the absence of upfront funding, their lower transaction fees limit potential profitability even with increased usage.

The appeal of credit cards is also diminishing due to a decline in lucrative reward programs. Ongoing reductions in merchant fees, coupled with card companies’ efforts to adjust cost structures, have led to the reduction or elimination of cards offering substantial rewards and discounts. This erosion of benefits further discourages credit card usage.

“The accumulation of cost burdens, combined with the difficulty of finding clear avenues for revenue improvement, is the reality we face,” said a representative from the card industry, as reported by local news outlets. “This year is likely to be another challenging one for the entire card industry.”

The pressure on credit card firms isn’t new. Since a revision to the Specialized Credit Finance Business Act in 2012, financial authorities have regularly recalculated appropriate credit card processing fees every three years, consistently resulting in fee cuts. This has steadily eroded the share of merchant fee revenue in card companies’ total income, weakening their core business. In 2024, merchant fee revenue for the eight major companies totaled 8.19 trillion Korean Won, but its share of total revenue fell to 29%, down from 30.2% in 2023 and 35.5% in 2021.

the rise of online payment platforms is reshaping the payment ecosystem, adding another layer of competition. The ability of card companies to offset losses through lending products, such as card loans, is also weakening due to deteriorating financial health among cardholders, as highlighted in reports from the Financial Supervisory Service (FSS).

The situation is prompting card companies to undergo structural transformations and business reorganization to ensure survival. Shinhan Card, for example, is accelerating cost-cutting measures and workforce reductions. However, the long-term implications of these changes, and the ability of the industry to adapt to evolving consumer behavior, remain uncertain.

Recent data also indicates that credit card companies are facing challenges in funding. The interest rate on specialized credit finance bonds, a major funding source, stood at 4.926% as of October 27, 2023, adding to the financial strain. Net profits for major players like KB Kookmin Card and Woori Card have plummeted, with declines of over 20% in the third quarter of 2023. While Samsung Card fared relatively better with a smaller decline of 0.8%, the overall outlook remains challenging.

Small businesses are also increasingly turning to credit cards for financing, particularly those unable to access traditional loans. This trend was observed during the monetary policy tightening of 2022-2023, with credit card usage increasing significantly before being impacted by rising interest rates. This suggests that credit card debt supply plays a role in small business performance, and changes in credit availability can have tangible economic consequences.