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| Costco Wholesale has chosen Hyundai Card as its credit card partner over Samsung Card. Yonhap |
Samsung Card's loss results from transition for new growth, analysts say
By Park Hyong-ki
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| Hyundai Card logo / Courtesy of Hyundai Card |
Costco has recently chosen Hyundai Card, the No. 4 credit card as its new partner over Samsung Card via open bidding. Samsung had been Costco's partner for the last 18 years. Costco consumers will have to either use Hyundai Card or cash to buy products beginning May 2019 for the next 10 years.
Samsung Card is the second largest credit card company with a market share of about 20 percent, following Shinhan Card's 22 percent. KB Card is the third biggest with a 15.6 percent share, followed closely by Hyundai Card's 15.4 percent as of the end of March this year, according to the Financial Supervisory Service.
The news of Costco's new credit card partner came as a surprise given its longstanding relationship with Samsung, with the forecast that Samsung cardholders will face growing inconvenience as they will have to switch their cards to Hyundai.
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| Hyundai Card CEO Chung Tae-young, third from left, and Costco Wholesale Korea President Cho Min-soo, on Chung's left, sign documents for a partnership at Hyundai Card headquarters in Seoul, August 24. Hyundai Card CEO Chung Tae-young's Facebook |
A Hyundai Card spokesman said its top priority was ensuring a "soft-landing" for Costco customers, especially small business owners through various marketing and reward programs developed in coordination with Costco.
Samsung Card could not be reached for comments.
Some say the Costco-Hyundai alliance will be a "big loss" for Samsung Card, which had benefited from increasing its brand exposure among Costco shoppers.
Industry sources and analysts say the partnership will certainly help boost Hyundai Card to become one of the top three players.
However, Samsung is unlikely to face a noticeable loss as speculated given its fee revenue from purchases via credit card transactions at Costco had been marginal because of the store's low interchange fee rate policy.
The deal will strengthen Hyundai's market position, said a person familiar with the matter.
"It will provide a catalyst for Hyundai Card to gain a higher market share," the person said.
"Samsung lost the deal as part of a transition the company is going through in trying to find new sources of growth."
Therefore, it was not a "total loss" for Samsung Card, which has already "calculated and run a simulation," comparing the Costco deal and its future potential business, the person added.
Lee Nam-seok, an analyst at KB Securities agreed, saying the deal in favor of Hyundai Card is not going to rapidly narrow the gap between Samsung and Hyundai, and Samsung is not going to lose out big time.
"It is certainly good for Hyundai to rise up. But Samsung's Costco revenue has been estimated to account for an insignificant portion of its total."
Samsung Card earned 583 billion won in fee revenue in the second quarter of this year. In 2017, its total fee revenue stood at over 2.2 trillion won, the analyst noted, citing the company's financial statement.
Compared to at least 50 billion won that could be earned annually by a credit card company from transactions at Costco, Lee added the Costco contract for Samsung had been small.
The U.S. warehouse chain has strictly adhered to a policy of forging a partnership with only one credit card company to keep the interchange rate low so that it can sell products at a low price near their wholesale value.
Its payment network partner has been changed to Visa from American Express.
In Korea, although they did not disclose the rate, it had been assumed Samsung gained less than 1 percent from every credit card transaction at Costco after customer purchases.
Hyundai Card said it is expected to maintain a similar rate to minimize confusion following customers' switching of credit cards.
Costco Korea, a wholly owned subsidiary of Costco Wholesale International, posted a net profit of 118.6 billion won for fiscal 2016 ending August 31, 2017, according to its audit filing.
E-Mart used to own a 3.3 percent stake in Costco Korea.
Hyundai Card's biggest shareholder is Hyundai Motor, while that of Samsung Card is Samsung Life Insurance.
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