Naver Pay's Small Postpaid Payment Avoiding the Financial Consumer Protection Act... Card Industry on Edge

April Naver Pay to Launch Small-Amount Postpaid Payment Service
Concerns Over Card Companies' Market Share Erosion

Photo by Yonhap News

[Asia Economy Reporter Ki Ha-young] Starting next month, Naver Pay will launch a small-amount postpaid payment service, causing the card industry to become highly alert. With the implementation of the Financial Consumer Protection Act (FCPA) on the 25th, which has contracted the business environment, there are concerns about the market expansion of Naver Pay, which is not subject to the FCPA.

According to the industry on the 29th, Naver Financial, which operates Naver Pay, plans to introduce the small-amount postpaid payment service next month. This service allows users to make payments first within a monthly limit of 300,000 KRW even if their prepaid balance is insufficient, and repay later. Previously, the Financial Services Commission designated Naver Financial’s small-amount postpaid payment service as an innovative financial service last month.

Effectively, electronic financial service providers like Naver Financial can now perform roles similar to credit card companies, prompting card companies to closely monitor the situation. The influence of fintech companies is growing in the expanding simple payment market, and there is a high possibility that the postpaid payment limit of 300,000 KRW per month will be increased over time.

According to the Bank of Korea’s “2020 Payment Trends,” the share of simple payments among mobile device payments increased from 32.4% in the first quarter of 2019 to 41.5% at the end of last year, and the share of fintech companies within simple payments surged to 61.7% in the fourth quarter. The small-amount postpaid payment limit has also increased for mobile carriers, starting at 300,000 KRW per month in 2016 and currently reaching up to 1,000,000 KRW per month.

In particular, card companies are raising fairness issues regarding Naver Pay not being subject to the FCPA while card companies inevitably face a contraction in their business activities due to the FCPA. They argue that competition with fintech companies not subject to the FCPA could create a “tilted playing field.”

In fact, “hybrid check cards” similar to the small-amount postpaid payment service provided by Naver Financial are classified as loan products and thus subject to the FCPA. On the other hand, Naver Pay, which offers the same service, is not classified as a financial product and is therefore not subject to the FCPA. A Naver Financial official stated, “The amendment to the Electronic Financial Transactions Act (EFTA) allowing small-amount postpaid payments by electronic financial operators has not yet passed the National Assembly. Because of this, the small-amount postpaid payment service was selected as an innovative financial service through the financial regulatory sandbox and is not a financial product subject to the FCPA.”

An industry insider from the card sector expressed concern, saying, “Due to the implementation of the FCPA, a contraction in the business environment for card companies is inevitable for the time being. If different regulations apply to the same service, card companies have no choice but to watch Naver Pay’s market encroachment.”

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