MasterCard losing clout
Korean cards seek 'independence' from global giants
By Kim Tong-hyung
Global credit-card giants MasterCard and Visa are beginning to look smaller in Korea where their logos are increasingly left off plastic.
MasterCard and Visa make money here by processing offshore transactions for card firms here and the growing number of Korean business and leisure travelers in recent years has been a boon for them.
But the two companies in recent months have experienced a cooling relationship with major Korean partners, who are moving to establish their own international transaction networks to cut spending on royalties and reduce consumer complaints about extra commissions.
BC Card, which handles the credit card business of 11 member banks, became the first major issuer to distance itself last year. It signed a partnership with 103 credit card firms around the world, including Discovery Financial Service of the United States, JCB of Japan and China Union Pay, and launched BC Global Card for its customers to swipe abroad.
The transition is so far looking like a success with BC reporting more than 1.6 million customers for its BC Global Card a year after its launch. MasterCard and Visa have been taking 1 percent commission from Korean consumers on purchases from affiliated cards in foreign countries, but BC Global Card users are delighted they don’t have to pay that any more.
Korean card companies have been paying hefty bills to MasterCard and Visa too, with fees set at 0.04 percent of their customers’ domestic and 0.2 percent of international transactions. They are now finding there are better deals out there. For example, Discovery Financial Service doesn’t ask for the 0.04 percent on domestic transactions.
Shinhan Card, the country’s biggest credit card company, is also experimenting life without MasterCard and Visa. It has gathered more than 3 million customers for its Yours Card, affiliated with JCB. Lotte Card and KB Kookmin Card are partnering with China Union Pay to introduce new cards for travelers.
``Until now, credit card companies have been paying MasterCard and Visa not only for international transactions, but even for domestic ones. By launching an affiliated card with China Union Pay, we can reduce the burden for our customers and the company at once,’’ KB Kookmin Card CEO Choi Gi-eui recently told reporters.
Not that MasterCard and Visa are in any danger of becoming irrelevant here. Their logos are still on more than 90 percent of Korean credit cards issued for both domestic and international use.
The breadth of their global transaction networks is still unmatchable and the annual 20 billion to 30 billion won they give to their Korean partners to help with marketing fees shows that the relationship isn’t entirely lopsided.
Still, it’s worth noting that the local card firms are trying to become more independent at a time Korean travelers are setting new records in overseas credit card purchases.
``MasterCard and Visa combine for an utterly dominant presence and this is allowing them to keep commission rates elevated, despite advancements in information technology that are enabling a reduction in costs,’’ said an official from a major card firm.
``We have been facing increasing pressure to lower the commission burden on customers and at the same time be more aggressive in diversifying our international transaction networks. And these two goals happen to go hand-to-hand.’’
Koreans made a record $8.6 billion worth of purchases abroad last year. Overseas credit card transactions reached $2.27 billion in the first three months of this year, up 5.2 percent from the preceding quarter and the second highest ever after the $2.29 billion spent in the third quarter of last year.
Data from financial regulators show that Korean card firms paid 128.4 billion won (about $110 million) in royalties to MasterCard, Visa and other international partners in 2010.