Netflix, Melon, and Others to Prevent 'Opaque Paid Conversion'

Notice of Legislative Proposal for Amendment to the Enforcement Decree of the Specialized Credit Finance Business Act
Notification of Relevant Matters at Least 7 Days Before Paid Conversion

[Asia Economy Reporter Kim Hyo-jin] Subscription economy companies such as Netflix, Melon, and Coupang are set to be required to notify consumers at least 7 days in advance when converting free trial services to paid subscriptions, and to make subscription cancellations easier.

The Financial Services Commission announced on the 3rd that it will publicly announce the amendment to the Enforcement Decree of the Specialized Credit Finance Business Act, which includes these measures, from the 4th until the 15th of next month, and plans to revise related standard terms and conditions accordingly.

The subscription economy refers to a model where consumers pay a fixed amount regularly, and providers supply specific goods or services. Netflix and Melon (digital content services), Coupang and Gmarket (regular delivery services), and Ridibooks and Millieoseojae (books) are classified as subscription economy companies.

Due to the expansion of digital platform-based consumption and shorter trend cycles, the global subscription economy market is estimated to reach approximately $530 billion this year. In South Korea, various forms of subscription economy services have been activated, influenced by the impact of COVID-19.

Subscription service providers operate as sub-businesses of credit card merchants or payment gateway companies, while consumers pay subscription fees via credit card or bank transfer methods.

Meanwhile, issues such as insufficient notification when converting from free trials to paid services, overly complicated cancellation procedures in preparation for subscription, and inadequate refund measures upon subscription cancellation have been continuously raised.

Accordingly, the financial authorities plan to specify in the standard terms and conditions that when a free service converts to a paid one, consumers must be notified in writing, by voice call, text message, or other means at least 7 days before the conversion date. This includes cases where a discount event ends and the service switches to the regular fee, and notification must be given at least 7 days in advance regardless of whether the paid conversion was informed at the time of subscription.

The financial authorities will also mandate that contracts can be canceled through simple procedures on mobile applications (apps), websites, and other platforms, and will extend the available cancellation hours. For example, the contract signing and cancellation paths will be shown on the same screen, and cancellation requests will be accepted even after regular customer service hours.

Furthermore, when canceling a recurring payment, if the payment has not yet been made, the fee will be charged proportionally to the usage period before cancellation; if payment has already been made, the refund will be processed by deducting the proportional amount for the usage period.

If payment was made before cancellation, consumers will be able to receive refunds immediately via card payment cancellation, bank transfer, or other methods, ensuring sufficient choice of refund options.

Relaxation of Major Shareholder Requirements for Banks with Credit Card Business

Meanwhile, the financial authorities included in the amendment a plan to reasonably relax the major shareholder requirements when granting permission for banks and others to operate credit card businesses concurrently, delegating specific standards to licensing guidelines (Financial Services Commission notices).

Currently, when banks seek concurrent credit card business permission, the same major shareholder capital requirements (at least four times the invested capital) as for exclusive licenses are applied.

The financial authorities considered that during bank licensing, strict major shareholder and financial requirements equivalent to those for credit card business permission are already reviewed in advance.

They also took into account that when banks operate financial investment businesses concurrently, no separate capital requirements are applied, and relaxed standards are reviewed.

The amendment also adjusts the reporting deadline for changes in major shareholders of non-card specialized credit finance companies from the current "within 7 days" to "within 2 weeks," aligning it with the Governance Act.

Additionally, the review of registration requirements and confirmation of cancellation conditions for value-added telecommunications service providers can be delegated to the Financial Supervisory Service.

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