Free Ride Over

Samsung Electronics, the provider of Samsung Pay, has notified all Korean credit card companies that it will no longer extend its free Samsung Pay service agreements with them. Credit card companies are regarding this as the sign that Samsung is planning to charge fees for Samsung Pay just like Apple Pay, which recently launched in Korea.

Samsung Electronics sent a letter to all Korean card companies on May 10 stating that it will not extend Samsung Pay contracts after Aug. 10. It is notable that this notice of contract termination was sent fully eight years after Samsung Electronics launched Samsung Pay in 2015.

The letter has put credit card companies at a loss. Companies say that they have really promoted the use of Samsung Pay among their credit card members for years, believing that Samsung Pay will remain free, but now they are blindsided. Credit card industry insiders estimate the number of Samsung Pay users at 16 million, saying that Samsung Electronics has the final say in negotiations with credit card issuers over Samsung Pay.

Financial industry insiders are speculating that Samsung Electronics’ decision is closely related to Apple Pay’s recent debut in Korea. “Following Hyundai Card, other card companies are also planning to introduce Apple Pay, so Samsung Electronics cannot wait and see any longer,” said a credit card company official. “I think that Samsung Electronics thinks, ‘If a credit card issuer pays for Apple Pay, why does the credit card issuer not pay for Samsung Pay?’” Some analysts believe that Samsung is trying to increase the amount of fees paid by credit card companies that have not yet adopted Apple Pay in order to put pressure on them in negotiations with Apple.

However, it remains unclear whether or not Samsung will go for charging credit card issuers for Samsung Pay. This is because what Samsung Electronics has notified the credit card companies of so far is not that Samsung Electronics will charge fees for Samsung Pay unless the contracts are extended. “There is no decision on charging fees for Samsung Pay yet,” a Samsung Electronics representative said. Market observers expect Samsung to start specific negotiations with the credit card companies before Aug. 10.

If Samsung Electronics decides to charge for Samsung Pay, it seems inevitable that benefits for cardholders will be reduced. If Samsung Pay fees are added as new expenses, it will cut into credit card companies’ profits.

Government authorities said that while charging fees is a private and autonomous matter, it will intervene in the issue of the credit card companies passing on related costs to consumers. At the time of Apple Pay’s introduction, the authorities said, “Credit card companies should not pass on costs such as fees related to Apple Pay to customers or merchants.”

Meanwhile, as big tech companies like Apple and Samsung expand their share of the simple payment market, credit card companies are losing ground. In fact, according to the BOK’s March report on payment trends in Korea, the share of credit card companies in the simple payment market fell to 33.4 percent in 2022 from 43.8 percent in 2019. Fintech companies, on the other hand, accounted for 66.6 percent of the market, up 10.4 percentage points from 56.2 percent in 2019.

Experts say that credit card companies need to find new strategies in order to compete with big tech companies in the simple payment market. The credit card companies are faced with the difficult task of evolving into comprehensive payment platform operators that combine various businesses and risk management capabilities, not just remaining payment business operators.

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