Ahead of Next Year's Fee Recalculation... Card Industry Watches Amid Pressure for Further Reductions (Comprehensive)

Song Eon-seok and Koo Ja-geun, People Power Party Members
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 to lower fees during the recalculation process. Given that credit card companies' profitability has already deteriorated due to previous fee cuts, 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 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 proposes excluding taxes and levies from annual sales calculations for items with high tax or levy rates, such as tobacco and alcoholic beverages, to reduce the card fee burden on small business owners and the self-employed. It also requires financial authorities to consult card merchants when setting sales criteria or preferential fee rates.

Earlier, Gu Ja-geun, also from the same party, introduced an amendment to the Credit Business Act that exempts card fees entirely for payments under 10,000 KRW at small merchants and applies preferential fee rates to merchants in traditional markets regardless of sales volume.

Card Industry: "There Is Essentially No Fee Burden on Small Self-Employed Businesses"

The card industry expresses surprise at these moves. Since card companies provide funds upfront and settle payments later without distinguishing items like tobacco or alcohol, they argue that excluding only taxes from total payment amounts is not feasible. They also point out that exempting tobacco taxes from sales calculations could lead to fairness issues extending to all goods subject to value-added tax (VAT) of 10% and other products.

Card companies claim that small and micro self-employed merchants already bear no real fee burden, as they benefit from preferential fee rates and tax credits. Currently, for merchants with annual sales under 300 million KRW, card fees are 0.8% for credit cards and 0.5% for check cards. Additionally, a 1.3% tax credit on credit card sales further increases the amount refunded to merchants.

Over the past decade, merchant fees have been reduced more than ten times. In 2018, the scope of preferential merchants expanded from those with sales under 500 million KRW to those under 3 billion KRW, increasing the share of preferential merchants from 84% to 96%. Due to retroactive application of the preferential fee refund system, card companies refunded 65 billion KRW to new small and medium merchants in the first half of this year alone.

Discussions on Recalculation of Eligible Costs for Fees to Begin Early Next Year... Concerns Over Pressure to Lower Fees

Above all, the card industry fears that these fee reduction initiatives will influence the scheduled recalculation of card merchant fee rates next year. Starting early next year, a task force (TF) will be launched to recalculate eligible costs for card fees, with discussions between financial authorities and the card industry expected to last about a year. Fee rates are determined by reviewing costs such as card companies' funding costs, risk management costs, general administrative expenses, VAN fees, and marketing expenses. The newly calculated eligible costs will apply to card merchant fee rates from 2022 onward. Card companies anticipate that since they generated profits this year by reducing marketing and other expenses, the eligible costs calculated next year will likely be lower, which would lead to lower fee rates.

An industry insider said, "There is concern that the bill aiming to reduce card fees could open the door to expanding the scope of preferential fee rates during next year's eligible cost recalculation, leading to further fee cuts. From the card companies' perspective, if fee income decreases further, they will have no choice but to cut costs and reduce consumer benefits," expressing their worries.

Another industry source stated, "Small merchants already face virtually 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 rate reductions," he said.

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