Ahead of Recalculation of Merchant Commission Rates... Card Industry Wary of "What If They Lower It Again" (Comprehensive)

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 credit card industry are set to 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 COVID-19 pandemic, there is a growing tendency to lower the fee rates. The card industry is deeply concerned about the possibility of fee reductions, which are their main source of revenue, amid adverse factors such as the lowering of the legal maximum interest rate and the onslaught of Pay services.

According to industry sources 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. The recalculation requires each card company's financial statements, which are finalized by the end of March. Once the financial statements are available, a task force (TF) team will be formed, centered around the Financial Services Commission, including the Credit Finance Association and eight specialized card companies, 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. The fee rates are determined by reviewing the card companies' costs (eligible costs), including funding costs, risk management costs, general administrative expenses, VAN fees, and marketing expenses. The newly calculated eligible costs form the basis for the new card merchant fee rates applied from 2022. In 2018, the detailed contents were decided through consultations among related agencies such as the Financial Services Commission, based on a study on eligible costs for merchant card fees conducted by Samil PwC accounting firm.

Concerns Over Pressure to Lower Fee Rates Due to COVID-19

The industry’s stance is to freeze or minimize reductions in merchant fee rates. However, as the difficulties faced by self-employed individuals and small business owners have intensified due to COVID-19, there is a prevailing expectation that merchant fee rates will be further reduced.

In fact, legislation to reduce credit card merchant fee rates has already been proposed in the political arena. Representative 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 credit card payments under 10,000 KRW for small and medium-sized merchants with annual sales under 3 billion KRW, and applies preferential fee rates to merchants in traditional markets regardless of sales size.

Representative 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 individuals by excluding taxes and levies on items such as tobacco and alcohol from annual sales calculations.

Over the past decade, merchant fee rates have been reduced 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 individuals and small business owners increase due to COVID-19, pressure to reduce fees may come from political circles and others. Since fees have already been set below cost after several reductions, if fee income falls further, consumer benefits will inevitably have to be reduced as a cost-saving measure."

Another industry insider said, "Since profits were made last year through cost reductions such as marketing expenses, eligible costs are also likely to decrease. Accordingly, there is concern that fee rates may also be lowered."

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