Card firms lose clout despite record earnings at financial groups

South Korea’s major financial holding companies posted record earnings last year, but their card subsidiaries are steadily losing relevance as profitability weakens under mounting regulatory and cost pressures.

According to industry data on Monday, the combined net income attributable to controlling shareholders of four major card units under KB, Shinhan, Hana and Woori Financial Group totaled 1.17 trillion won ($783 million) last year, down 12.6 percent from 1.34 trillion won a year earlier.

In contrast, the four financial groups reported a combined net income of 17.93 trillion won, up 9.7 percent from 16.35 trillion won in the previous year. Earnings growth was largely driven by banks, insurance units and other non-card affiliates.

As a result, the contribution of card companies to overall group profits declined sharply. Card units accounted for just 6.6 percent of total net income last year, down from 8.4 percent in 2023 and 8.2 percent in 2024.

Among bank-affiliated card firms, Shinhan Card maintained the largest presence, but its share of group net income fell to 9.6 percent from 12.9 percent in 2024, as its net profit dropped 16.7 percent to 476.7 billion won from 572.1 billion won.

KB Kookmin Card saw its contribution decline from 7.9 percent to 5.7 percent, while Hana Card slipped from 5.9 percent to 5.4 percent. Woori Card was the only exception, with its share inching up slightly from 4.77 percent to 4.80 percent.

Industry analysts attribute the downturn to a combination of declining merchant fee rates and tighter household lending regulations, which have reduced card loan volumes. According to the Financial Supervisory Service, merchant fee income at standalone card companies fell by 442.7 billion won last year.

Rising interest rates are adding further pressure. The yield on three-year specialized credit finance bonds stood at 4.017 percent as of April 3, up 0.68 percentage point since the start of the year. The rate also jumped from 3.585 percent on Feb. 27 to 3.713 percent on March 3 amid geopolitical tensions in the Middle East, increasing funding costs for card issuers.

“The biggest concern is the rising burden of funding as interest rates climb, while both domestic and external conditions remain unfavorable,” a senior industry official said.

Facing worsening conditions, card companies are stepping up cost-cutting measures, including workforce reductions. Shinhan Card carried out voluntary retirement programs earlier this year following a similar move in June last year, and is also seeking to sell its headquarters building, Pine Avenue A, in central Seoul, which it acquired in 2020 for about 520 billion won. KB Kookmin Card also implemented voluntary retirement early last year.

The combined workforce at Shinhan, KB Kookmin, Hana and Woori Card stood at 5,658 at the end of last year, down 4 percent from 5,891 a year earlier.

Market watchers expect financial groups to rely more on banks, securities and insurance affiliates rather than card units for earnings growth in the near term. “Card firms are expanding into new businesses such as stablecoins to find breakthroughs, but prospects remain challenging,” a financial group official said.