FSC targets December launch for deposit-backed credit cards

Repay balance, restore limit — reusable on a revolving basis

Alternative credit data to broaden access for low-credit users

Issuers cut default risk; users build credit history

[Getty Images Bank]
[Getty Images Bank]

"Even an unemployed college student can use a credit card just by putting down a deposit?"

A new type of credit card that allows thin-filers — young adults, foreigners and others with little or no credit history — to obtain a card by placing a cash deposit is set to launch by the end of this year. Unlike unconditional loan support programs, the deposit acts as a safeguard against delinquency, and the product is being described as a practical pathway for thin-filers to enter the mainstream financial system.

The Financial Services Commission plans to introduce a credit card issuance framework in December that can accommodate people with limited financial histories, including young adults and foreign residents. Under the scheme, applicants who cannot demonstrate repayment capacity through conventional financial records would place a cash deposit with the card issuer and be granted a credit line within that amount.

The specific deposit amount and credit limit have not yet been finalized. The FSC plans to gather input and proposals from the card industry before settling on the details. Alternative credit assessments — drawing on non-financial data such as mobile phone bill payment records and online shopping histories — are also expected to be factored into the card approval process.

Within the industry, a deposit and credit limit in the range of 1 million to 2 million won ($747) is being discussed as the most workable option. "If the deposit is too high, it becomes yet another barrier for young people who are short on funds; if it is too low, the card loses its practical value as a payment tool," one card industry official said.

Spending patterns among young adults are also expected to inform the limit-setting process. According to the Korea Inclusive Finance Agency's 2024 Youth Finance Survey, the average monthly credit card bill among young adults stood at 1.47 million won. By spending bracket, the largest share — 50.4 percent — fell below 250,000 won per month, followed by the 1 million to 2 million won bracket at 16.2 percent and the 500,000 won to 1 million won bracket at 11.2 percent.

The existing monthly purchase cap on prepaid cards, prepaid electronic payment instruments and gift vouchers bought with credit cards is also being cited as a reference point. To prevent cash conversion — a practice known locally as "card-kkang" — credit card purchases of such products are currently capped at a combined 1 million won per month. Taking this into account, the industry is considering setting 1 million won as the baseline limit, with individual card issuers able to raise it to a maximum of 2 million won following their own credit review.

For foreign applicants, additional discussions are needed on income criteria, visa status and remaining length of stay. Banks and card companies have long applied strict conditions — including residency period requirements — even when issuing savings-deposit-backed cards to foreigners. If the new system lowers those barriers, competition among card issuers to attract foreign customers is expected to intensify.

Some may wonder how a deposit-backed credit card differs meaningfully from a debit card. The key distinction is that a debit card draws money from the account the moment a transaction is made, whereas a deposit-backed credit card keeps the deposit intact while extending credit for a set period.

With a debit card, for instance, once the 1 million won in the linked account is spent, no further purchases can be made until the account is topped up. With a deposit-backed credit card, the credit limit is restored once the monthly bill is paid on time. Cardholders can also enjoy the perks of a regular credit card, including discounts and reward points.

The biggest advantage is the ability to build a legitimate credit history. Paying the monthly bill on time accumulates a record of normal credit transactions, which helps improve a credit score. For young adults and foreigners who have long been shut out of credit cards and loans due to a lack of financial history, the product could serve as a kind of "credit ladder."

Card companies are also welcoming the new framework. Because any unpaid balance can be offset against the deposit, the risk of delinquency and default is lower than with a conventional credit card. From the issuers' perspective, the product offers a way to secure young adults as future customers while also opening the door to foreign residents who have little domestic financial history.

"Card companies can keep delinquency risk in check, and young adults and foreigners can build a credit history," one card industry official said. "It is a positive development in that the burden does not fall entirely on one side — neither the financial institution nor the consumer."

Savings-deposit-backed credit cards already exist, but their use has been limited in practice. Customers must visit a bank in person to place a lien on their deposit, and separate coordination between the bank and the card issuer is required. Standalone card companies without an affiliated bank face an even steeper hurdle, as they must partner with an outside bank to offer the product.

In response, the industry is calling for the deposit-backed credit card to be designed so that customers place the deposit directly with the card issuer. This would allow standalone card companies to launch the product without a separate bank partnership, cutting out the cumbersome procedures associated with existing savings-deposit-backed cards. It would also open the door to a wider range of products combining each issuer's own perks, such as discounts and reward points.


forest@heraldcorp.com