Card Company Union Threatens 'General Strike'... Opposes Further Reduction of Merchant Fees (Comprehensive)

Press Conference Opposing Additional Card Fee Reduction on the 8th
Strike Level to Be Decided Starting the 15th
Worst Case Scenario: Potential Customer Service Disruption

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] Ahead of the announcement of the franchise store commission fee reform plan returning after three years at the end of this month, the card company labor unions have pulled out the total strike card in opposition to further reductions. The unions are determined to involve even the departments related to customer card usage if they enter a total strike. There are concerns that in the worst-case scenario, computer systems and telephone consultations could be blocked, inevitably causing damage to customers.

On the 8th, the Card Company Labor Union Council held a press conference opposing additional reductions in card commission fees and announced that they would launch a government-level struggle including a total strike. The card company unions criticized, "Despite 10 rounds of reductions in card commission rates, the pain of small business owners has not improved due to fundamental problems in government policy."

They added, "Considering the value-added tax credit system, about 92% of small and medium-sized franchise stores effectively bear 0% of the card commission fee burden," and "Meanwhile, rents have surged without any policy restraint, and the fees unilaterally set by big tech companies have sharply increased the burden on small and medium-sized business owners without any regulation." In fact, it is pointed out that big tech companies providing payment services similar to card companies charge franchise fees 1.6 to 1.8 times higher than card companies for small franchise stores.

A representative of the union council said, "On the 15th, we will hold a total strike resolution rally in front of the Financial Services Commission and conduct member meetings by branch to continue the determination," adding, "The decision on whether and to what extent to strike will be made depending on the Financial Services Commission's response." The card company unions are also discussing measures to suspend customer services. They plan to review various options such as suspending card payment services or delaying the timing of payments to franchise stores after card payments compared to the current schedule. If the card company unions launch a strong total strike, departments directly related to customer card usage, such as computer systems and telephone consultation departments, may also join the strike, raising concerns about customer damage.

13 Reductions Over 12 Years... Card Industry "Commission Revenue Deficit"

The card franchise commission rate will be decided at the end of this month after consultations between the ruling party and the government. The commission rate is revised every three years according to the Specialized Credit Finance Business Act amended in 2012. The structure applies the revised card franchise commission rate from next year based on newly calculated eligible costs. Eligible costs are calculated based on cost analysis including card companies' funding costs, risk management costs, general administrative costs, VAN fees, and marketing expenses.

The franchise commission rate has been reduced 13 times over 12 years from 2007 to 2019. As a result, the general franchise card commission rate, which was as high as 4.5% in 2007, has been halved to 1.97?2.04%. The rate for small franchise stores is around 0.8%. Especially, in 2018, the scope of preferential franchise stores was expanded from those with annual sales under 500 million KRW to those under 3 billion KRW, increasing the proportion of preferential franchise stores from 84% to 96% of all franchise stores. The card industry explains that considering tax benefits, franchise stores with annual sales under 1 billion KRW effectively have commission rates in the 0% range. In reality, franchise stores are complaining of losses. The industry estimates that operating profit in the franchise commission sector recorded a loss of 131.7 billion KRW over the past two years (2019?2020). As commission revenue decreased, 40% of card branches were reduced, and the number of card solicitors, which once approached 100,000, sharply dropped to 8,500.

However, with the presidential election next year and worsening management difficulties for self-employed people due to COVID-19, the political sphere is leaning toward the possibility of further reductions. The fact that card companies achieved good performance by tightening belts such as reducing marketing expenses due to COVID-19 also serves as justification for additional cuts. In the first half of this year, card companies recorded a net profit of 1.4944 trillion KRW (based on eight full-service card companies), a 33.7% increase from the previous year. However, concerns about worsening management are rising due to interest rate hikes and the introduction of the Debt Service Ratio (DSR) starting next year.

There are also criticisms that reducing franchise commission rates will inevitably lead to a reduction in benefits for card customers. Franchise commission fees, along with annual fees, are the most basic resources for providing benefits to card customers. If there is a negative margin in franchise commission fees, reducing customer benefits, starting with new product benefits, becomes inevitable.

Experts point out that commission fee reductions are not a panacea. Professor Kim Sang-bong of Hansung University’s Department of Economics said, "For small and medium-sized businesses, card commission fees are already at zero level, and considering tax benefits, they are actually getting money back." Professor Seo Ji-yong of Sangmyung University’s Department of Business Administration advised, "If the goal is to help self-employed people, discussing other measures such as loans rather than reducing card commission fees would be more effective," and added, "Regarding eligible costs, fairness with big tech companies should also be considered."

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