December is a peak season for credit card companies due to events like Christmas and year-end gatherings, but consumer sentiment is freezing amid ongoing political instability.
According to the card industry on the 16th, card companies have launched December promotions to attract year-end and Christmas business. Lotte Card is offering discounts at approximately 1,300 'century-old stores' across the country throughout December through the 'Co-Prosperity Festival' organized by the Ministry of SMEs and Startups and the Korea SMEs and Startups Agency. BC Card is also providing prizes to customers of its proprietary ‘Baro Card’ until the 31st, with a total of 10,000 people eligible for a chance to purchase an iPhone 16 Pro for 100,000 won (10 people) and Paybook money up to 30,000 won (9,990 people).
Woori Card has doubled the coffee discount limit at four locations, including Starbucks, Twosome Place, Coffee Bean, and Paul Bassett, for its popular cafe discount card 'D4 Card Standard II' until the end of this month. Shinhan Card is offering up to 50,000 points based on last month's performance through its point plan. Especially in the consumer-heavy month of December, an additional 10,000 special points will be given on top of the usual accumulated points.
Despite these efforts from credit card companies, consumer sentiment is shrinking due to the impeachment crisis triggered by the state of emergency on December 3rd. According to Korea Credit Data, credit card sales at small business establishments across the country from December 2nd to 9th decreased by 9.0% compared to the same period last year.
Typically, as political uncertainty increases, the domestic economy also stagnates. In historic impeachment crises, domestic consumption plummeted, resulting in a direct backlash. The retail sales index during the fourth quarter of 2016, when the impeachment crisis of former President Park Geun-hye began, increased by only 2.2% compared to the same period the previous year, recording the lowest figure of that year. Following the Constitutional Court's decision on impeachment the following year, the retail sales index dropped to a growth rate of around 1%. Similarly, during the period from the impeachment motion to the dismissal of the late former President Roh Moo-hyun from March to May 2004, consumer sentiment also waned.
The slowdown in the travel industry due to rising exchange rates is also a concern. With the U.S. dollar value soaring to the 1,430 won range due to the state of emergency, many are canceling overseas trips. If the won-dollar exchange rate rises above the psychological barrier of 1,450 won to the 1,500 won level, cancellations of overseas trips are likely to increase even more. Credit card companies, which derive significant revenue from overseas transactions, are also expected to suffer.
The third-quarter revenues of major credit card companies are generally good compared to the previous year. The cumulative net profit for the eight domestic card companies (Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Hana, Woori, and BC Card) in the third quarter of this year amounted to approximately 2.2511 trillion won, an 8.3% increase compared to the same period last year.
However, credit card companies cannot smile too broadly. The strong performance in the third quarter is considered an economic surplus resulting from cost reductions. There are projections that the downturn in consumer sentiment could have an even more adverse effect on the fourth-quarter performance of credit card companies. A card industry official noted, 'The exchange rate between the won and yen, which is seen as a barometer for overseas travel, has also risen to the 930 won range, leading to an expected overall decrease in overseas travel,' adding, 'Unlike previous years, this December may not be considered a peak season.'