April 20, 2024
Finance
Debit card spending rises on tax benefits: data
[THE INVESTOR] Spending on debit cards climbed at a steeper rate last year than that on credit cards, on the back of higher tax benefits and a modest consumption trend, market data showed on March 28.
The total spent with debit cards stood at 160.8 trillion won (US$150.5 billion) in 2017, up 7.2 percent from a year earlier, according to data released by the Financial Supervisory Service.
Though the figure was about a quarter of the total spent with credit cards, the on-year increase was higher than the 5.3 percent for credit cards.
Total debit card issuance also stood at 110.3 million, outrunning that of credit cards by more than 1 million.
The public’s increasing preference for debit cards is largely attributable to the 30 percent tax deduction rate at the year-end tax adjustment, while credit card spending only gets a 15 percent deduction, officials explained.
It also partly reflects the sluggish domestic consumption trend in which consumers prefer to closely keep watch on outflowing cash.
A consumer survey by the Bank of Korea showed on March 27 that the Composite Consumer Sentiment Index for March marked 108.1. While a score over 100 shows consumers are optimistic, the figure marked a decline for four consecutive months.
For credit card service operators here, such changes in consumer trends could pose challenges, as debit cards offer lower profitability than credit cards.
The commission fee that card operators collect from affiliates is generally about 0.3 percentage point lower than that for credit cards, according to industry officials. In the case of nonbank credit services such as by Samsung, Hyundai and Lotte, the actual profit margin nears zero, as they also have to pay account usage charges to the banks.
“If we were to consider the debit card sector’s profitability only, it would be wiser to stop issuance all together, but these debit card customers are valued as intangible assets as they may move on to an affiliated credit card or expand their other transactions within our system,” said an official of a leading credit card firm.
By Bae Hyun-jung/The Korea Herald (tellme@heraldcorp.com)
The total spent with debit cards stood at 160.8 trillion won (US$150.5 billion) in 2017, up 7.2 percent from a year earlier, according to data released by the Financial Supervisory Service.
Though the figure was about a quarter of the total spent with credit cards, the on-year increase was higher than the 5.3 percent for credit cards.
Total debit card issuance also stood at 110.3 million, outrunning that of credit cards by more than 1 million.
The public’s increasing preference for debit cards is largely attributable to the 30 percent tax deduction rate at the year-end tax adjustment, while credit card spending only gets a 15 percent deduction, officials explained.
It also partly reflects the sluggish domestic consumption trend in which consumers prefer to closely keep watch on outflowing cash.
A consumer survey by the Bank of Korea showed on March 27 that the Composite Consumer Sentiment Index for March marked 108.1. While a score over 100 shows consumers are optimistic, the figure marked a decline for four consecutive months.
For credit card service operators here, such changes in consumer trends could pose challenges, as debit cards offer lower profitability than credit cards.
The commission fee that card operators collect from affiliates is generally about 0.3 percentage point lower than that for credit cards, according to industry officials. In the case of nonbank credit services such as by Samsung, Hyundai and Lotte, the actual profit margin nears zero, as they also have to pay account usage charges to the banks.
“If we were to consider the debit card sector’s profitability only, it would be wiser to stop issuance all together, but these debit card customers are valued as intangible assets as they may move on to an affiliated credit card or expand their other transactions within our system,” said an official of a leading credit card firm.
By Bae Hyun-jung/The Korea Herald (tellme@heraldcorp.com)
