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[NEWS IN FOCUS] Hyundai, Shinhan reach deal on commission fees

The automaker won, but the fight is likely to move to other sectors

Mar 14,2019
Hyundai Motor and Shinhan Card reached a deal on commission fees Wednesday, but the fight between card companies and their partnered companies is only just beginning.

Korea’s largest automaker by sales had announced its intention to cut contracts with card companies in protest of a sudden hike in commission fees earlier this month. The deadline for negotiations was Sunday for most local card companies and today for BC Card.

Card issuers were hoping to raise current commission rates by roughly 0.1 percentage points, but Hyundai objected citing recent sluggish performances and the overall market difficulties local automakers like GM Korea are facing.

The automaker said it would terminate contracts unless further negotiations were held.

While six companies - BC Card, KB Kookmin Card, Hyundai Card, KEB Hana Card, NH Nonghyup Card, and Citicard - had already agreed to make compromises on their initial proposals as of Monday, the country’s largest card company Shinhan Card as well as Samsung Card and Lotte Card had insisted on keeping the high rates.

Hyundai said it and Shinhan “came to a consensus on commissions to minimize damage caused to our customers,” in a statement Wednesday.

As the country’s largest card issuer bowed to pressure from the automaker and complaining consumers who were unable to purchase Hyundai cars with Shinhan cards, Samsung and Lotte are expected to soon follow suit.

A Hyundai spokesperson said the result of talks with Samsung and Lotte will soon come out now that the deal with Shinhan has been finalized.

While this means relief for Hyundai and local automakers for the time being, it doesn’t mean the battle for higher commission fees is over.

The move to raise commission fees was sparked by a plan crafted by the Financial Services Commission last year that makes card companies cut commissions on small and midsized firms earning 50 billion won ($44.12 million) or less in annual revenue. This forced card companies to look for ways to make up for the losses, leading them to raise rates for larger companies from this month.

Large companies, however, are not willing to pay more. The compromise with Hyundai may be a truce for now, but more friction between card companies and retail, telecommunications and travel companies will likely soon follow.

“Hyundai was able to win the battle because Hyundai has its own card affiliate Hyundai Card and it has quite a dominant position in the local auto market,” said Kim Ki-myung, a research fellow at Korea Investment and Securities. “Also customers choose whether to purchase cars based on the car itself rather than their card options because it is such a high-priced product that you buy once in a very long time not monthly.”

Kim said the negotiating power of other companies in the retail or telecommunications sector is likely to be weaker than Hyundai, leaving more room for them to take on higher commission rates.

“Everybody uses cell phones and many customers pay the fees on monthly automatic payments linked with their credit cards,” Kim said. “When mobile carriers decide to cut contracts with card companies, the complaints in this case are likely to be toward carriers, [not card companies,] because of the inconvenience.”

As for retail companies, Kim said the fierce competition between multiple retailers may mean that dropping a partnership with a card issuer could put companies in a risky position.

While the struggle goes on, the country’s financial regulator is being criticized for sitting back without offering a clear plan to resolve the issues. An industry insider said the regulator has overlooked the consequences of the plan as its focus leaned toward saving small business operators.

Disputes between card companies and their larger partner companies are expected to continue for some time, and consumer benefits offered to card subscribers, including interest-free installments and membership point benefits, could gradually be reduced as card issuers scramble to cover up their losses.


BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]


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