Analysts suggest that credit card companies partnering with mobile payment systems like Apple Pay experience initial benefits in attracting new customers, but face challenges in anticipating sustained profitability in the long run.
According to sources in the financial sector on Dec. 7, Oh Tae-rok, a research fellow at the Korea Institute of Finance, stated, “Merchant fee revenue increased by 70.6 billion won [US$53.57 million] in the first half of this year compared to the same period last year. However, costs associated with fees paid to affiliated companies surged by 207.4 billion won. There is a need to contemplate the assurance of profitability through the expansion of partnerships with simple payment services and others,” during the “12th Credit Finance Forum” held at the Korea Federation of Bank building in Seoul on Dec. 6.
In fact, Hyundai Card, the exclusive partner of Apple Pay that landed in the domestic market this year, saw a surge in new customers only in the early stages. Based on data from the Credit Finance Association, the number of new customers for Hyundai Card reached 203,000 after the introduction of Apple Pay in March. However, in subsequent months the figures showed a downward trend with 166,000 in April, 145,000 in May, and 120,000 in July.
There are concerns that if the introduction of Apple Pay by Hyundai Card does not yield substantial benefits and results in a decline in profitability, existing customers may experience negative consequences or bear the impact of the situation.
During the recent parliamentary audit, Representative Yun Chang-hyun of the People Power Party expressed concerns, stating, “When calculating card eligibility costs two years later, it is possible that the costs of Apple Pay could be passed on to existing customers,” adding, “In a situation where companies are facing losses due to high commission payments, a vicious cycle could emerge where these losses are offset by transferring the burden to users.”
Currently, it is reported that Hyundai Card is paying a high fee of 0.15 percent to Apple, which is comparatively higher than fees in other countries. According to Representative Yoon’s office, Hyundai Card incurred a loss of 2.27 billion won (US$1.72 million) from March, when it introduced Apple Pay, until August. The overall profitability has worsened since the introduction of Apple Pay. Apple Pay’s per-transaction performance is lower when compared to regular credit cards, and it carries a higher proportion of fixed costs such as labor and rent. Yoon’s office estimates that the fees paid to Apple and Visa alone would amount to 341.7 billion won if Apple Pay took over 10 percent of the credit card market in South Korea.