Card Industry Launches Discussions on Recalculating Merchant Fee Rates... Heightened Pressure for Reduction (Comprehensive)

Start of Accounting Firm Selection for Cost Analysis Consulting
Concerns Over Worsening Industry Management Due to Political Moves for Additional Price Cuts

[Asia Economy Reporter Ki Ha-young] As the card industry begins selecting an accounting firm to reassess merchant fee rates, the first step toward recalculating the fees has been taken. Card companies are concerned that, with small business owners facing increased financial difficulties due to COVID-19 and the upcoming presidential election next year, politicians and authorities might push excessively for fee rate reductions.

According to the industry on the 22nd, the Credit Finance Association sent proposals to major accounting firms on the 19th to select a consulting firm to conduct a cost analysis of card merchant fees. The association plans to review the proposals from accounting firms that express interest and select a cost analysis consulting firm by early next month.

Previously, in 2018, an accounting firm conducted a cost analysis from May to August, and based on the results, financial authorities and the Credit Finance Association discussed reform plans for the fee system. At that time, the financial authorities finalized a reform plan to reduce credit card fees by up to 0.65 percentage points and check card fees by up to 0.46 percentage points for small and medium merchants with sales between 500 million and 3 billion KRW, announcing it at the end of November.

Political Circles Propose Successive Fee Reduction Bills... Industry Says "Fees Already at Cost Level"

As discussions to reassess merchant fees begin, voices are growing louder in political circles calling for additional fee reductions to support self-employed and small business owners struggling due to the COVID-19 aftermath. Independent lawmaker Lee Yong-ho introduced a bill on the 19th to amend the Specialized Credit Finance Business Act, aiming to apply additional preferential card fee rates exclusively to small-scale merchants. The bill proposes subdividing the annual sales threshold of 300 million KRW for preferential fee rates, applying an additional preferential fee rate within 50% of the upper limit for merchants with annual sales of 100 million KRW or less, and within 30% of the upper limit for those with annual sales of 200 million KRW or less.

Earlier, Ku Ja-geun of the People Power Party proposed an amendment to the Specialized Credit Finance Business Act that would exempt card fees entirely for small credit card transactions under 10,000 KRW for small and medium merchants with annual sales of 3 billion KRW or less, and apply preferential fee rates to merchants in traditional markets regardless of sales size.

The card industry is anxiously concerned about further fee reductions, as merchant fee rates are already at cost level. Last year’s strong performance, driven by lower funding costs amid a low-interest-rate environment and reduced sales and marketing expenses, could ironically serve as justification for additional fee cuts. The upcoming presidential election next year is also seen as a negative factor increasing the likelihood of fee reductions.

An industry insider said, "After multiple fee rate cuts, fee revenue is already at cost level. We have tried to generate revenue beyond fees through business diversification, but we worry that even this might be used as a reason for further fee reductions."

In fact, card companies’ merchant fee revenues have been declining. This is due to the expansion of the preferential merchant application range from 500 million KRW or less to 3 billion KRW or less in 2018, which increased preferential merchants to 96%. Merchant fee revenue decreased by 239.8 billion KRW in 2019, and in the first half of last year, it fell by 94.5 billion KRW compared to the previous year.

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