[Square] Implications of Postpaid Payments in China for Korean Card Companies

Attention Needed on China's Credit Card Experience Transformed by Customer Account-Based Mobile Credit Cards

Seobonggyo Dongduk Women's University Department of Chinese Studies Professor

Recently, big tech companies that have built non-financial digital network platforms in areas such as existing e-commerce and social networking services (SNS) have emerged as strong competitors to traditional financial institutions. These companies are rapidly rising by providing differentiated and innovative personalized financial services that combine big data and artificial intelligence (AI) based on user data secured from their existing non-financial businesses.

In Korea, it was decided last July to allow non-bank payment service providers such as Kakao Pay and Naver Pay to engage in small-amount postpaid payment businesses. Once this system is introduced, consumers will be able to use 'buy now, pay later' financial services within a limit of 300,000 KRW when purchasing products through e-commerce platforms without linking a credit card. This could mark the beginning of a serious survival competition era for credit card companies, which have so far been responsible for postpaid payment services.

China is rapidly emerging as a global leader in the digital finance sector. However, it is not widely known that the postpaid payment financial services by non-bank payment service providers, which Korea aims to introduce, were already permitted in 2015. Alipay, China's representative mobile payment platform, launched its postpaid payment service, My Huabei, in 2015. This service gained tremendous popularity, attracting 1.5 million customers within six months of its launch. On November 11, 2015, China's largest online e-commerce discount event, Singles' Day, recorded 60.48 million transactions in one day, accounting for 8.5% of Alipay's transaction volume that day. The postpaid loan limit of My Huabei ranges from 500 yuan to 50,000 yuan (approximately 8.5 million KRW), determined by Alipay's proprietary customer credit score (Zhima Credit).

Jingdong, a newly emerging online e-commerce platform gaining competitiveness through fast delivery services, also provides postpaid payment services to its internet e-commerce customers. Launched in March 2016, Jingdong Baitiao offers interest-free repayment within 30 days, and its average interest rate is lower than that of credit card loans. The usage amount of this service on November 11, 2017, increased by 450% compared to the same day in 2016. On November 11 last year, Jingdong Baitiao's postpaid payment service surpassed 100 million yuan (approximately 17 billion KRW) in just 10 seconds.

As digital finance based on mobile platforms rapidly grows in the areas of payments, postpaid payments, and small consumer loans, the credit card business strategies of traditional Chinese banks are also changing swiftly. In response to this rapid growth of new mobile finance, Chinese credit card companies have made efforts to strengthen their overall digital financial capabilities. First, they are working to enhance digital information capabilities by reorganizing digital customer information systems suitable for the mobile finance era. Second, they are promoting digital product innovation based on customer accounts rather than individual credit cards. Through this product innovation, the operator of the credit card has shifted to the customer, allowing them to actively design the desired credit card services. Third, they are pursuing mobile transition policies for smart digital lifestyle service innovation that can support the entire ecosystem of personal lifestyle financial services such as e-commerce, cultural activities, and asset management.

The acceleration of technological innovation and the convergence of customer touchpoints to smartphone mobile devices is an unavoidable global trend. To survive and win in the rapidly changing environment, it is necessary to quickly respond to these changes and secure essential capabilities for the new mobile financial order. In particular, it is hoped that Korea's credit card industry can gain insights from China's experience, where the credit card business has transformed from an individual card-based model to a customer account-based mobile credit card model that allows customers to freely choose services using smartphones, to establish future business directions.

[Seobonggyo, Professor of Chinese Studies, Dongduk Women's University]

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