Aftermath of Tourism Restriction
It is expected that the spark of China’s Korean tourism restriction measures lined to China's retaliation against South Korea’s plan to deploy the Terminal High Altitude Area Defense (THAAD) system will impact the Korean credit card industry as well. The use of UnionPay International (UPI) Card used mainly by Chinese tourists in South Korea has dropped significantly, which may cut back on commissions for BC Card and Shinhan Card which purchase slips and settle accounts.
According to the credit card industry on March 5, major credit card companies in Korea have made various efforts to join hands with UnionPay, which boasts a 99% share of the Chinese credit card market over the past two to three years. Shinhan Card succeeded in partnering with UnionPay at the end of last year after three years of hard work. As a result, since 2005, Shinhan Card has been involved in the purchase and settlement of UnionPay's domestic offline merchants' slips which were done exclusively by BC Card before. That is to say, BC Card and Shinhan Card purchase such UnionPay slips used by Chinese tourists at Korean merchants and settle them with UnionPay International.
The credit card industry estimates the amount of money paid with UnionPay Card by Chinese tourists which are soaring in Korea at 5 to 6 trillion won (US$4.2 to 5.1 billion) annually. It is found that most Chinese tourists pay with UnionPay Card. In fact, the Ministry of Culture, Sports and Tourism announced last year that credit card spending by Chinese tourists and residents in Korea grew 46.2% to 8.3323 trillion won (US$7.08 billion) over the previous year.
In the credit card industry, commissions for UnionPay slip purchases and settlements are expected to hit 100 billion won (US$85 million) a year, even on the assumption that the commission rate is 1.5%.
On top of that, it is expected that a brake will be put on Korean credit card companies’ plan to make a foray into China and other countries with UnionPay. Shinhan Card sealed a business alliance deal with UnionPay last year to seek joint development in the payment market in Northeast Asia, but is keeping an eye on the situation since the recent happenings.