[Viewpoint] Platform Business Strategies for Credit Card Companies

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University

Offline consumption is rapidly declining due to the novel coronavirus infection (COVID-19) crisis. Credit card companies are also experiencing poor performance. Last year, the net profit of domestic credit card companies was 1.6 trillion won, a 5.3% decrease compared to the previous year, and this year, adverse factors affecting profits continue to emerge due to COVID-19. These include increased risk management costs due to rising delinquency rates, increased funding costs caused by higher interest rates on card bonds, increased accounts receivable from airlines due to flight cancellations, and deferred interest repayment measures on small business card loans. It is now an inevitable time to prepare specialized strategies to curb the decline in credit card companies' profitability.

As a specialized strategy, it is necessary to consider advancing or expanding platform businesses. Platform business is a business that intermediates various services based on mobile or internet platforms and earns commission income. The platform market is a typical two-sided market connecting consumers and sellers. Therefore, platform business can be seen as an optimal business that fits the credit card industry, which targets both merchants and card members as customers simultaneously.

Recently, various discount marketing campaigns by credit card companies have been conducted amid increased consumption through online shopping. Payback-included discount events are underway in online transactions through partnerships with delivery apps and various shopping mall companies. However, while these have short-term sales increase effects, they are not desirable as a business strategy in preparation for the prolonged COVID-19 situation. This is because increased marketing costs due to cutthroat competition among credit card companies can damage profitability. Ultimately, platform-centered business transformation and expansion should be considered from the following three perspectives.

First, a platform shift focused on food services and daily necessities is necessary. Due to the impact of COVID-19, online shopping transaction volume in February this year increased by about 25% compared to the same period last year. The increase in online shopping transactions was led by food services and daily necessities. This reflects a consumer pattern preferring convenience foods over dining out. Online sales of daily necessities such as detergents, tissues, and cleaning agents also increased by about 53% compared to the previous year. Many credit card companies already operate platform businesses introducing partner companies' insurance and travel products. It is an effective time to shift and advance online shopping intermediary platforms focused on prepared foods and quarantine daily necessities.

Second, opportunities for partnerships with major e-commerce companies should be utilized. Recently, an online shopping intermediary platform company famous for rocket delivery spun off its payment business division and entered the payment market. Partnering with this company would provide an opportunity to attract over 10 million members. Expanding business through collaboration on Private Label Credit Cards (PLCC) with major fintech companies that dominate the e-commerce market is expected to significantly help secure loyal customers, reduce recruitment costs, and increase sales.

Third, business capabilities should be concentrated on preempting the subscription service market. Recently, the subscription service market, where consumers pay a fixed amount monthly after membership registration to use products and services, is rapidly growing. The range of services has diversified from newspapers and magazines to cars, accommodations, and offices. Especially, with the lifestyle pattern of avoiding outside outings becoming common due to COVID-19, the subscription service market is gaining attention. Demand for video services (OTT) such as movies and online education is increasing. Preempting the OTT market and other subscription services has a high potential to lead to recurring revenue in the future. Although some credit card companies have launched service cards that offer point accumulation benefits for online subscription service payments, service cards need to be further diversified. Moreover, beyond partnerships with subscription service platform companies, it seems desirable for credit card companies themselves to secure and operate subscription service platforms.

Credit card companies have detailed customer data and big data analysis capabilities. This is why transformation into subscription service platform operators has a sufficient chance of success. Recently, Apple is promoting its transformation from an IT device manufacturer to a platform company through its subscription service platform and Apple Card as a subscription service payment method. In the management crisis situation caused by COVID-19, credit card companies must also hasten their transformation into various platform operators.

[Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University]

This content was produced with the assistance of AI translation services.