Credit card use tops 60% of spending

Koreans’ credit card use has risen sharply over the past few years as more people pay for goods and services with plastic. (Photo : The Korea Times)

Koreans’ credit card usage accounted for more than 60 percent of the nation’s total private spending as more people use plastic to pay for goods and services, according latest data, Monday.

According to the Credit Finance Association, a lobby group of credit card issuers, a total of 1.1 trillion won of goods and services was put on credit cards, marking 63.1 percent of private consumption from January to March. This is up 3.5 percentage points from the previous quarter. In 2000, the figure was at around 25 percent. The ratio was about a quarter. It topped the 40 percent mark five years ago. It reached 52.8 percent in 2009 and was at 59.6 percent last year.

As credit card spending is rising fast, many housewives, including Lim Soo-hyang from Ilsan, Gyeonggi Province, use the monthly credit card bill as a basis for their monthly budget.
“It’s easy and convenient. Most of the spending for both of us is with credit cards so we don’t need to collect receipts and write daily financial statements because the credit card companies send the bill monthly,” said Lim.

Experts say changing consumer patterns and expanding Internet shopping malls have also strengthened the status of credit cards in Korea. As shopping habits have changed from traditional markets and mom-and-pop stores to discount chains and convenience stores, credit card use has also risen drastically.

But experts this is a double-edged sword for the economy.
“High credit card use has contributed to expanding tax revenue. However, it’s also a cause of household debt and excessive consumption.”

In contrast to the expanding use of plastic, the number of credit cards per economically active person dropped by 0.1 to 4.7 in March from December decreasing for the first time in five years. The figure increased gradually from 2007 to 2011 but dropped slightly this time largely thanks to the government’s efforts to cancel inactive credit cards.

Even though people frequently use their credit cards, it does not mean they are satisfied with the services provided by their issuers. Credit card companies are often under fire for high interest rates on loans. They charge between 10.5 and 22.9 percent interest, depending on credit rating, from two to five times the interest charge on mortgages.

Korea’s credit card industry has had its ups and downs. One of the biggest crises was in the early 2000s when the “card bubble” burst. At the time, companies issued credit cards to literally everyone over the age of 19. They issued them for college students with no fixed income and lured them with a wide range of discounts and benefits at restaurants and amusement parks.

LG Card, the nation’s biggest player, filed for bankruptcy and was sold to Shinhan Financial Group in 2007, which merged it with its credit card subsidiary Shinhan Card. Since then, Shinhan has led the sector with more than a 20 percent market share. <The Korea Times/Kim Jae-won>

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