The battle between insurance firms and credit card networks in South Korea has intensified as both sides refuse to back down from their respective positions on the issue of card-related fees, opening the door to potential regulatory intervention.
The issue began last year when insurers in South Korea complained that the fees they pay when customers’ use their cards to pay insurance premiums was too high (
Insurers pay 3% of the premium amount, a rate they want brought down to about 1%. But the card networks, including Samsung Card Co. Ltd., and Lotte Card Co. Ltd., have refused to budge because the insurance market represents only 1% of their revenues and they would consider rate cuts only when card payments grow.
Though the fee dispute has been stuck in a stalemate over the past year, pressure on the card networks from businesses and the government has reinvigorated it.
Following growing protests from small merchants, South Korea’s major card networks announced in October they would cut the interchange fees they collect from such merchants (
Hoping to secure a similar deal, more insurers, including Mirae Asset Life Insurance Co. Ltd., have said that they may join their peers in not accepting any more credit card payments from their policyholders. Insurers who stopped accepting card payments last year included Korea Life Insurance Co. Ltd., Kyobo Life Insurance Ltd., ING Life Korea Ltd., Prudential Korea Ltd. and PCA Life Korea Ltd.
“We are evaluating whether to stop allowing policyholders to pay premiums with their credit cards,” a Mirae Asset spokesperson tells PaymentsSource noting the insurer is in discussions with the card networks.
The root of the problem stems from a reform the Financial Supervisory Commission introduced last summer that removed insurance from a list of services not payable by credit card.
“Insurers could now entice customers into buying an insurance policy by telling them they could pay the initial insurance premium by credit card,” a spokesperson at the Credit Finance Association of Korea tells PaymentsSource. Because a credit card payment is one of the easiest ways to secure the initial premium needed to establish the contract, insurers encouraged prospective customers to do so, she says.
“We think that the next step would be for regulators to come in to this issue and solve the matter because it’s the consumer who is being adversely affected by this ongoing stalemate,” the spokesperson at the Credit Finance Association of Korea says.
Local media in South Korea have reported over the past two days that the Financial Services Commission is considering focusing insurance companies to accept card payments.
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