Woori to spin off credit card unit

After Woori Bank officially got the green light from the financial regulator to spin off its credit card business yesterday, the nation’s four major financial holding companies will have independent card companies.

Currently KB Financial Group, Shinhan Financial Group and Hana Financial Group run independent credit card companies.

The Financial Services Commission approved Woori Bank’s preliminary approval for separating its credit card unit at a regulatory meeting yesterday afternoon.

It normally takes about a month for the financial regulator to give final approval for spinoff applications, according to officials at the FSC.

“After we get final approval from the financial regulator around the end of February, Woori Card will officially debut in the market in early March,” said an executive at Woori Financial Group.

The spinoff will increase the number of independent credit card companies in Korea to eight.

Woori Bank’s credit card business unit has assets of 4 trillion won ($3.78 billion).

It controls 6.4 percent of the credit card market with total transactions in 2012 standing at 33 trillion won.

When Woori Card officially debuts in March, it will become the No. 7 player after Shinhan Card, KB Kookmin Card, Samsung Card, Hyundai Card, Lotte Card and BC Card, pushing Hana SK Card, which now ranks No. 7, down a peg.

Woori Bank previously sought spinoff approvals in April 2011 and last year. Financial regulator turned down the requests saying the credit card industry was already overheated. The FSC changed its mind this time as it believes Woori Card will generate healthy competition in the industry.

Woori Bank’s credit card business unit was re-merged with the bank in March 2004. It was originally spun off in January 2002 but then suffered from a nationwide credit card crisis in 2003, which made over 4 million people credit defaulters.

Some market observers say that Woori’s entry into the already fiercely competitive credit card market will be poisonous for the entire credit card industry. Once spun off, it is likely to be much more aggressive than earlier.

But a senior official at Woori Financial Group said Woori will differentiate itself from rivals by focusing on expanding the debit card market.

“Debit card use is common in Europe,” said a senior executive at Woori Financial Group’s strategy planning team. “Although Korea’s debit card use is at infant stage compared to Europe, there’s a lot of room for the market to grow and [Woori] wants to take the lead in expanding the overall size of the market. Our ultimate goal is to release debit cards that offer similar benefits available from credit cards in the future.”

The government is campaigning to encourage debit card use over credit cards to curb impulse spending. The government has raised tax breaks for debit card use to 30 percent in 2012 from 25 percent in 2011. It slashed tax breaks for credit cards to 15 percent from 20 percent over the same period.

As of November 2012, daily average transactions on debit cards was 220 billion won, a more than doubling from 100 billion won recorded in 2009, according to the Credit Finance Association.

By Kim Mi-ju [mijukim@joongang.co.kr]