Credit cards gain bigger share of household loan market

Consumers used their credit cards more for cash advances and household loans than for purchasing goods last year, which prompted the Financial Supervisory Service to consider ways of sharply lowering the limit on cash advances or even abolishing the service.

According to the Bank of Korea (BOK), the total value of credit card transactions in the first nine months of 2000 rose by 11.2 trillion won, more than twice the 5.4 trillion won seen in all of 1999. By sector, total cash advances showed the biggest increase with 6.7 trillion won, while the increase in card loan was 1.6 trillion won. The amount of goods purchased on credit cards rose by just 2.9 trillion won.

As a result, credit card companies increased their share of the total household loan market from 5.4% as of the end of 1999 to 9.3% at the end of September 2000. The share of the market enjoyed by insurance companies fell from 16.1% to 14.6% during the same period, and that of savings institutions, including savings & finance companies, credit unions, community credit cooperatives, and bank trusts, dropped from 36.8% to 27.9%.

Analysts said that credit card companies are rapidly encroaching on the territory of banks and insurers in the household loan market.

Noting that credit card companies armed with simplified loan procedures and aggressive marketing strategies are expanding their portion in the domestic household loan market, Kim Hyun-Ki, a researcher at the central bank, said that the increase in the cash advance service and the card loan service accounted for 74% of the total increase in the amounts settled through credit cards, changing the original purpose of using the credit card, namely, the credit purchase.

Park Hyeon-Jin witness@donga.com