[Opinion] The Core Competitiveness of Card Companies Regaining Attention: PLCC

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

Recently, Private Label Credit Cards (PLCC) have regained attention. Despite the decline in private consumption due to the COVID-19 pandemic, the effect of PLCC is emerging as the main driver of credit card companies' strengthened online business strategies. Looking at the third-quarter performance of full-line credit card companies that have pledged to expand their PLCC business this year, the cost-saving effect is clear.

It is noteworthy that despite operating revenues continuously decreasing over recent years, net profit improvement has been observed due to reduced operating expenses. In the case of PLCC, the card company offers cards with benefits specialized for a specific corporate brand, sharing revenues and costs with the partner company. This contrasts with traditional co-branded cards, where card design, promotion, and recruitment costs are borne by the card company.

In particular, PLCC is valuable because it contributes to reducing recruitment and marketing costs, which are burdensome for improving the profitability of card companies. Since loyal customers of brand-providing companies in sectors such as ICT and distribution use PLCC, the costs required for separate recruitment and promotion are reduced. Moreover, increased sales are expected through customer acquisition by the brand-providing companies.

Above all, the PLCC business is positive in that it can establish collaboration systems with leading companies in rapidly growing industries. Although exclusive profit is not possible due to revenue sharing with brand-providing companies, collaboration with leading companies with brand recognition also helps promote the card company. For brand-providing companies, there is sufficient incentive to collaborate with card companies, as the card company generally handles card issuance and payment, allowing the partner company to focus solely on product marketing.

Although the cost-saving effect of PLCC is currently highlighted due to sluggish consumption, it is likely to shine in terms of profit generation when the real economy recovers. Especially, as online consumption becomes more common than offline consumption recently, the delivery app market is rapidly growing. The delivery app market is expected to grow more than twice compared to the previous year. Recently, delivery app PLCCs have been launched, and their performance outlook is bright. When using delivery app PLCCs, card companies are preparing various additional benefits such as discounts, cashback, and point accumulation. From the consumer's perspective, there is no reason to use general cards or other payment methods.

Until now, the card industry has recognized business diversification through the creation of ancillary businesses as a task to be solved. They are focusing on diversifying the revenue structure of card companies, which has been concentrated on card loans and auto finance, by discovering new businesses. They are also putting great effort into securing competitive advantages against fintech companies that promote simple payment methods. However, unexpectedly, PLCC has been playing a key role during the COVID-19 era.

From the perspective of card companies that have recently increased card loans, the possibility of delinquencies is rising, leading to increased risk management costs such as provisions for bad debts. Furthermore, due to the deferment of principal repayment and interest waiver on card loans, credit risk has increased, making cost reduction more necessary than ever. In sports games, when the game is not going well, defense is emphasized over offense. Similarly, in card business, when the management environment is tough, cost reduction rather than profit generation is expected to become the core competitive advantage.

In the future, various business developments through PLCC by card companies can shine even more. This is because they can acquire consumers' non-financial data from brand-providing companies. For card companies with sufficient big data analysis capabilities, non-financial information will also be greatly helpful for MyData and credit evaluation (CB) business utilization.

The industries where PLCC is possible are endless. This is because collaboration is possible with leading companies in all industries that provide consumer goods and services, in addition to ICT and distribution. Since one card company can utilize multiple corporate brands, the marketing effect is difficult to measure. In conclusion, the choice of PLCC by card companies during the economic downturn caused by COVID-19 has been sufficiently successful, and the effectiveness of the PLCC business is likely to continue for the time being.

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

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