Ahead of Next Year's Fee Recalculation... Card Industry on High Alert Amid Pressure for Further Reductions

Song Eon-seok and Koo Ja-geun, People Power Party Lawmakers
Propose Bill to Reduce Card Fees
Card Industry Faces Pressure to Lower Fees Ahead of Next Year's Eligible Cost Reassessment Discussions

[Asia Economy Reporter Ki Ha-young] As discussions on the recalculation of card fees are set for next year, the card industry is growing increasingly anxious amid political moves pushing for further fee reductions. There are concerns that even without actual legislative changes, the very discussions could lead to pressure for fee cuts during the recalculation process. Given that credit card companies’ profitability has already deteriorated due to lowered credit card fee rates, another reduction could result in adverse effects ultimately passed on to customers.

According to industry sources on the 16th, Song Eon-seok, a member of the National Assembly’s Political Affairs Committee from the People Power Party, recently introduced a partial amendment bill to the Specialized Credit Finance Business Act aimed at lowering card fees to support small business owners and self-employed individuals struggling due to the COVID-19 pandemic.

The amendment’s core idea is to exclude taxes and levies from annual sales calculations for items with high tax or levy rates, such as tobacco and alcoholic beverages, thereby reducing the card fee burden on small business owners and the self-employed. It also mandates that financial authorities consult card merchants when setting sales criteria or preferential fee rates.

Earlier, Gu Ja-geun, also from the same party, proposed an amendment to the Credit Business Act that would completely exempt card fees for payments under 10,000 won at small merchants and apply preferential fee rates to merchants in traditional markets regardless of sales volume.

The card industry has expressed surprise. They argue that for items like tobacco and alcohol, card companies do not distinguish separately since they first make payments through financing and later settle the funds, so it is impossible to exclude only taxes from the total payment amount. There is also concern that exempting tobacco taxes from sales calculations could lead to fairness issues extending to all goods and services, including the 10% value-added tax imposed on all products.

Card companies claim that small and micro self-employed merchants effectively bear no fee burden, as they benefit from preferential fee rates and tax credits. Currently, for micro-merchants with annual sales under 300 million won, card fee rates are 0.8% for credit cards and 0.5% for check cards. Additionally, a tax credit of 1.3% of credit card sales is applied to sales tax, meaning the amount refunded can be greater.

Discussions on Recalculation of Eligible Costs for Fees to Begin Early Next Year

Above all, the card industry is concerned that these fee reduction moves will influence the recalculation of card merchant fee rates scheduled for next year. Starting early next year, a task force (TF) for recalculating eligible costs of card fees will be launched, and discussions between financial authorities and the card industry will continue for about a year. Fee rates are determined by reviewing costs (eligible costs) such as card companies’ financing costs, risk management costs, general administrative expenses, VAN fees, and marketing expenses. The newly calculated eligible costs will be applied to set new card merchant fee rates from 2022 onward. In particular, since card companies generated profits this year by reducing marketing and other expenses, it is highly likely that the eligible costs calculated next year will also decrease. This would lead to lower fee rates.

An industry insider said, "There is concern that the bill aimed at lowering card fees could open the door to expanding the scope of preferential fee rates during next year’s eligible cost recalculation, leading to additional card fee reductions. From the card companies’ perspective, if fee revenue falls further, they will have no choice but to cut costs and reduce consumer benefits."

Another industry official stated, "For micro-merchants, there is effectively no fee burden due to preferential fee rates below cost and sales tax credits. There is a need to improve the eligible cost system, which currently allows card companies’ cost-cutting efforts to drive fee rates down."

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