Will It Drop Again... Card Industry 'Watching Closely' Ahead of Merchant Fee Rate Reassessment

TF for Recalculating Franchise Commission Rates
Formation to Begin After Card Companies' March-End Settlement

[Asia Economy Reporter Ki Ha-young] Financial authorities and the card industry will begin full-scale discussions on recalculating credit card merchant fee rates as early as the end of March. Due to the prolonged economic downturn caused by the novel coronavirus disease (COVID-19), the atmosphere is leaning toward lowering the fee rates. The card industry is anxiously concerned about whether the fees, their main source of revenue, will be reduced amid adverse factors such as the lowering of the legal maximum interest rate and the onslaught of Pay services.

According to the industry on the 13th, discussions on recalculating eligible costs for merchant fees, which occur every three years, are expected to start as early as the end of March. Recalculation of fee rates requires each card company's financial statements, which are finalized at the end of March. Once the financial statements are available, a task force (TF) team centered around the Financial Services Commission, including the Credit Finance Association and eight specialized card companies, will be formed after processes such as selecting an accounting firm.

The recalculation of merchant card fee rates has been conducted every three years according to the amended Specialized Credit Finance Business Act of 2012. Fee rates are determined by reviewing costs (eligible costs) such as card companies' funding costs, risk management costs, general administrative expenses, VAN fees, and marketing expenses. The newly calculated eligible costs form the basis for applying new card merchant fee rates from 2022 onward. In 2018, detailed contents were decided through consultations among related organizations including the Financial Services Commission, based on a study on eligible costs for merchant card fees conducted by Samil PwC accounting firm.

The industry’s stance is to freeze merchant fee rates or minimize the reduction. However, as the difficulties of self-employed and small business owners have intensified due to COVID-19, the prevailing view is that merchant fee rates will be further lowered.

Card Companies Facing a Series of Adverse Factors
Anxious Whether Main Revenue Source Fees Will Be Reduced

In fact, bills to reduce credit card merchant fee rates have been proposed in the political arena. Rep. Gu Ja-geun of the People Power Party has proposed an amendment to the Specialized Credit Finance Business Act that exempts card fees entirely for small card payments under 10,000 KRW for small and medium credit card merchants with annual sales under 3 billion KRW, and applies preferential fee rates to merchants in traditional markets regardless of sales size.

Rep. Song Eon-seok of the People Power Party also proposed an amendment to the Specialized Credit Finance Business Act aimed at reducing card fee burdens for small business owners and self-employed by excluding taxes and levies such as those on tobacco and alcohol from annual sales calculations.

Over the past decade, merchant fee reductions have been implemented more than ten times. In 2018, the scope of preferential merchants was expanded from those with sales under 500 million KRW to those under 3 billion KRW, increasing the proportion of preferential merchants from 84% to 96% of all merchants. Due to the 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 last year alone.

An industry insider said, "As the difficulties of self-employed and small business owners increase due to COVID-19, pressure to lower fees may come from the political sector and others. The fee rates have already been set below cost due to several reductions, so if fee revenue falls further, consumer benefits will inevitably have to be reduced as a cost-saving measure."

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