'Social Distancing Level 2 Upgrade' by Card Companies Raises Concerns Over Offline Card Payment Contraction (Comprehensive)

Decline in Offline Payments Expected
Strategy to Strengthen Online Events

[Asia Economy Reporter Ki Ha-young] As the third wave of the novel coronavirus infection (COVID-19) intensifies, social distancing in the Seoul metropolitan area has been raised to Level 2, causing credit card companies to worry about a contraction in consumption. Due to the restrictions on dining-out businesses following the Level 2 upgrade, offline approval amounts are inevitably expected to decrease. However, they plan to target the increasing online consumption by strengthening online marketing.

According to the government and related industries on the 23rd, social distancing in the Seoul metropolitan area will be raised to Level 2 starting from the 24th due to the spread of COVID-19. Accordingly, the use of eight major consumption coupons for domestic demand activation, including lodging, travel, and dining, has been temporarily suspended. Under Level 2 social distancing, gatherings, meetings, and events of more than 100 people and the use of entertainment facilities are prohibited, and restaurants are only allowed to offer takeout and delivery after 9 p.m.

Credit card companies expect offline consumption such as dining and lodging to shrink significantly due to the strengthened social distancing. According to Korea Credit Data, during the fourth week of August when the social distancing was raised to Level 2.5 amid the second wave of COVID-19, the average sales of small business establishments nationwide decreased by 25%. This is the lowest level since the last week of February (February 24 to March 1), when the first wave of COVID-19 began, which saw a 29% decrease. In particular, sales of small businesses in Seoul dropped by 32% compared to the same period last year, marking the lowest nationwide level.

Accordingly, with the third wave directly hitting the sales of small business establishments again, offline credit card approval amounts are also expected to decrease significantly. Earlier this month, domestic card approval amounts increased by 6.3% compared to the same period last year due to the '2020 Korea Sale Festa' (Kosepe), but the atmosphere is expected to rapidly deteriorate.

Credit Card Companies Strengthen Online Events

In response, credit card companies plan to offset offline losses by strengthening online events. Recently, credit card companies have introduced various discount and cashback events targeting major shopping events such as China's largest shopping festival 'Guanggunje' and the United States' biggest shopping festival 'Black Friday.' Rather than events targeting indoor activities like movie theaters, they are offering benefits through various online services such as delivery applications (delivery apps) and online video streaming services (OTT) subscription payments.

In fact, credit card approval amounts began to decline from March due to strengthened social distancing amid the spread of COVID-19 but turned to an increasing trend from May and maintained this until September. According to the Financial Services Commission, online shopping card sales in the third quarter recorded 45.8 trillion won, an increase of 22.7% compared to the previous year. Online consumption accounted for most of the increase in total card approval amounts, compensating for the decrease in offline consumption.

An industry official said, "When the social distancing level is raised, offline consumption such as indoor activities inevitably shrinks," adding, "As COVID-19 prolongs, we have focused more on online marketing than offline, and online marketing is expected to become even more active in the future."

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