2 Trillion Won in Prepaid Balances Like 'Merge'... Consumer Protection Under the Electronic Financial Transactions Act Stalls in the National Assembly

Urgent Need for Legal Consumer Protection Measures
Interest Grows in Whether Parliamentary Discussions Will Gain Momentum

On the afternoon of the 13th, subscribers demanding refunds gathered at the headquarters of the payment platform company 'Merge Point' located in Yeongdeungpo-gu, Seoul. [Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] As financial authorities have yet to find a solution to the Merge Point controversy, attention is turning to whether discussions on the amendment of the Electronic Financial Transactions Act will gain momentum again. This is because there are still criticisms that consumer protection measures are insufficient amid the rapid and unpredictable activation of digital finance.

According to Lee Yong-woo, a member of the Democratic Party of Korea, on the 17th, the balance of prepaid recharge funds held by prepaid electronic payment companies such as Merge Plus, the operator of Merge Point, is estimated to exceed 2 trillion won. The scale of recharge funds, which was 780 billion won in 2014, rose to 910 billion won in 2016, 1.67 trillion won in 2019, and 1.99 trillion won as of September last year, more than doubling. According to the Financial Services Commission, there are currently 67 issuers of prepaid electronic payment instruments using prepaid recharge funds.

Prepaid recharge funds refer to money that is transferred in advance and stored for the use of payments or points at prepaid electronic payment companies, including simple payment services. By transferring money in advance and storing it, payments can be made quickly when needed, so the number of places to use and the amount used are gradually increasing. This has snowballed further amid the COVID-19 situation.

The problem is that while the scale of prepaid recharge funds is exploding, consumers are not protected by law. Although the financial authorities issued the "User Fund Protection Guidelines for Electronic Financial Operators" last year, there are no penalties even if companies violate them.

Therefore, there are calls for urgent legal protection measures. The amendment to the Electronic Financial Transactions Act, proposed in November last year, mandates that electronic financial companies deposit or entrust user funds held to external institutions such as banks or subscribe to payment guarantee insurance. It also introduces a preferential right of repayment, allowing users to be repaid their recharge funds ahead of other creditors in case the electronic financial company goes bankrupt.

Originally, the Electronic Financial Transactions Act was expected to pass the National Assembly by June this year, but discussions have stalled repeatedly as the Financial Services Commission and the Bank of Korea continue to struggle over payment authority.

A financial industry official pointed out, "If the Electronic Financial Transactions Act had passed, Merge Plus could have been registered with the authorities for management and supervision. If that had happened, this worst-case scenario might have been prevented."

Meanwhile, as the Merge Point controversy grows, the Financial Supervisory Service has decided to conduct a survey of electronic financial companies through a countermeasure meeting. They will identify and inspect cases operating without registration despite falling under the electronic financial business, like Merge Point. They also plan to re-examine whether registered prepaid operators comply with the guidelines.

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