Promoting check cards in Korea

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South Korea’s financial authorities outline to influence the public to console their operation of credit cards to converse with increasing household debts. Instead, the practice of check cards — which refer to cards including uses of both credit and debit cards — will possibly be encouraged. In coordination with the Ministry of Strategy and Finance, the FSC has planned methods for households

 While check cards have the benefit of hindering holders from purchasing carelessly as the paying system is focused on their bank balances, the nation found the check card use remain at less than 10 percent of the credit card use. To inspire the public’s check card handling, the FSC has been in meeting with the National Tax Service to provide check cardholders more favors in yearly income tax deduction. The income tax deduction rate for check cardholders recently reaches 25 percent, while the rate for credit cardholders bears at 20 percent. The financial authorities formulate to increase the rate for check card usage more from the 25 percent level. In most developed nations, check card use accounts for about 50 percent of the total payment cards, comprising credit cards, according to the FSC. FSC mentioned that in the situation under credit card issuers are engaging in heated competition again, there is a possibility that the nation would see the various credit defaulters surge. Aside from the promotion for the public, it is required to instruct credit card companies to raise the percentage of issuance of check cards.

 As a promotion degree, the FSC has previously ordered credit card corporations to lessen payment service payments cost on retail stores for customers’ check card usage. On the other hand, the FSC also outlines to decrease the maximum level of interest rate provided by private moneylenders from 44 percent to 39 percent per annum. Moreover, even people in lower credit standings could find their credit scores increased if they honestly pay public utility fees under the broad procedure. According to the Financial Supervisory Service, credit card companies’ combined assets, combining insolvent loans, exceeded 76.5 trillion won in 2010, after continued to increase over the past few months. The number of card salesperson also came to about 50,000 as of the end of 2010, up 30 percent from 35,000 a year earlier.

 The competition led to sharp increases in card issuances and service loans, similar to the last industry crisis, in which the then-largest issuer LG Card and some others had to be rescued with creditors’ money. The trend is more risky coming on top of already high household debt. With this enhancement of various advantages and expansion of scope available for settlements, the number of check cards in South Korea is forecasted to grow in large scope. This environment will stimulate growth in such cards as they have comparatively less delinquency risk involved to issuers. However, the growth rate of other cards like credit cards may be adversely affected by recession. Issuers are hesitating in issuing new credit cards due to the fear of bad debts.

JiMin Park (parkjm0718@naver.com)

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