As the issue of expanding insurance premium payments through credit cards remains unresolved and in limbo, the insurance industry is becoming increasingly concerned. This unease is fueled by predictions that the usage volume of convenient payment services like Kakao Pay and Naver Pay will surpass credit card usage within the next decade. If premium payments through these convenient payment services become widespread, insurance companies may find themselves paying higher transaction fees compared to credit card payments.
According to “Payment Settlement Service Market Status” data presented on Oct. 8 by Kim Han-kyu, a lawmaker from the Democratic Party and a member of the National Assembly’s National Policy Committee, the Credit Finance Research Institute has analyzed that annual transactions through convenient payment services will experience explosive growth. The analysis projects that the annual transaction volume will surge from 267.4 trillion won (US$198.22 billion) in 2022 to 1,173.4 trillion won in 2032, more than quadrupling in a decade.
On the other hand, the amount of individual card usage, including credit and debit, is expected to grow at a modest rate of 1 to 2 percent per year, resulting in a projected increase from 896.5 trillion won to 1,095.6 trillion won over the course of a decade, approximately 1.2 times its initial value. If this trend continues, it appears that the volume of individual card usage will surpass that of convenient payment services by 2032.
While the current usage of convenient payment services compared to individual card usage is at the moderate level of 30 percent, it is predicted to grow to approximately 50 percent in two years and reach a point where one out of every two transactions will be conducted through convenient payment methods within a decade.
The convergence of the government’s policies to foster and support fintech, along with the expanding influence of big tech platforms, is leading to the widespread adoption of mobile payment methods, utilizing smartphones and others, to the extent that they are becoming as common as traditional card payments.
In the insurance industry, concerns regarding premium payments through convenient payment services are growing. Payment methods for insurance premiums through convenient payment services are broadly categorized into two main methods: bank account linking, which involves linking a bank account, and card linking, which involves linking credit cards and other payment cards.
The bank account linking method deducts insurance premiums directly from a bank account and typically incurs minimal to no fees. In contrast, insurance companies argue that the card linking method, which is known to have transaction fees in the 2 percent range, is also burdened with additional fees on top of that for them.
An industry insider in the insurance sector said, “While we cannot disclose the specific details, service fees levied on convenient payment providers are double, resulting in higher fees for payments made through convenient methods compared to card payments.”
As a result, life insurance companies, primarily offering long-term and savings-oriented products that require monthly premium collections, only permit convenient payments through the account linking method. The caution is most pronounced among property and casualty insurance companies, which allow convenient payments through card linking for their flagship products, auto insurance. Currently, the proportion of premium payments through convenient payment methods is less than 1 percent of the total.
The real challenge lies ahead. An industry insider from the non-life insurance sector pointed out, “If insurance comparison and recommendation services through platforms become more active next year, there is a significant possibility of an increase in convenient payments linked to a certain pay app operated by big tech companies.”
As the proportion of payments through convenient methods increases, insurance companies would have to pay even higher fees to the convenient payment service providers. This, in turn, leads to an increase in operating costs, which can become a factor for raising insurance premiums. Similar to card payments, the fee structure passes on the fees entirely to the insurance companies if insurance consumers do not bear the transaction fees.
The issue here is that while the transaction fees of credit card companies are regulated through the government, the transaction fees of convenient payment service providers are at the discretion of each company.