Embattled credit card companies may face stiff competition from online-only banks that are fast seeking ways to infiltrate the market, according to industry sources.

One such entity is Kakao Bank, a consortium of three firms Kakao, Korea Investment & Securities and Kookmin Bank. 

“Our plan is to launch credit cards linked to our services and win the approval (from the government) within this year,” a Kakao Bank official told a local paper, although it has not revealed the details.

If Kakao Bank succeeds, analysts believe local credit card firms that are already struggling due to falling demand, may suffer declines in their operating profit.

According to the Financial Supervisory Service data, the sector lost more than 10,000 users during the first half of 2015. 

In November last year, Kakao released an app-to-app service that doesn’t utilize any intermediaries between card firms and card member stores. This was new for the industry, since most major credit card issuers use intermediaries such as NICE Information Service for operational stability and nationwide access to member stores.

Without an intermediary, member stores would be subject to commission fees. In addition, Kakao card users, too, will be given larger points credits, compared to the existing brick-and-mortar card issuers, for the same of amount of card usage.

However, offline card companies question the feasibility of card services without VAN companies.

“We are intrigued by the news, but unsure about how well the idea will work,” said an official of Hyundai Card.

“Credit card services requires many different services, including capital financing, credit management and marketing, to name a few,” the official said, pointing out that Kakao Bank lacks the human resources for handling such a multifaceted business.

However, experts believe Kakao Bank has a good chance of obtaining approval from the financial regulator to launch card-issuing service, since online-only banks are exempt from many of the entry hurdles imposed on larger credit card firms. 

The financial regulator’s persistent attempts to promote the sagging financial sector are also expected to further give the online-only institutions a boost.

By Chung Joo-won (joowonc@heraldcorp.com)