[Card Fee Reform] Burden Shifted Again to Card Companies... Growing Backlash Over "Election Bribery"

Commission Rate Reduced to 0.5% for Annual Sales Under 300 Million KRW, Resulting in Total Commission Savings of 470 Billion KRW
Industry: "Burden Increasing... Franchise Commission Revenue Already in Deficit"
Card Company Unions: "Card Fees Politicized, Measures Like Payment Network Shutdown Still Valid"

[Asia Economy Reporter Ki Ha-young] According to the credit card fee reform plan announced by the ruling party and the government on the 23rd, self-employed business owners will receive a fee reduction benefit of 470 billion KRW. The core of the plan is a significant reduction in the credit card fee rate for small merchants with annual sales of 300 million KRW or less, who account for about 75% of all card merchants, from 0.8% to 0.5%. The rationale is to minimize the burden on self-employed business owners who were directly hit by COVID-19. However, experts point out that since the actual card fees have effectively been zero after 14 reductions over 14 years since 2007, the real benefit for self-employed business owners from this measure will not be substantial. Ultimately, criticism arises that the government has shifted the responsibility for COVID-19 damages onto card companies, mindful of self-employed voters who influence regional votes ahead of the presidential election. The card industry, facing a crisis, is warning of strong opposition including collective action, predicting intense conflict.

Financial Services Commission Chairman Ko Seung-beom is delivering opening remarks at the ruling party and government meeting on card fee reform held at the National Assembly on the 23rd. Photo by Yoon Dong-joo doso7@

Fee Reduction Amount of 470 Billion KRW... 14th Reduction in 14 Years

According to the ruling party and government, with this fee rate adjustment, the credit card fee rate for small merchants with annual sales of 300 million KRW or less will be lowered by 0.3 percentage points to 0.5%. For annual sales between 300 million and 500 million KRW, the fee will be reduced from 1.3% to 1.1%, and for 500 million to 1 billion KRW, from 1.4% to 1.25%.

For sales between 1 billion and 3 billion KRW, the fee will be reduced from 1.6% to 1.5%. As a result, about 96% of all card merchants will experience a reduction in card fees. The actual reduction amount is 470 billion KRW.

Card fees are revised every three years according to the Specialized Credit Finance Business Act amended in 2012. The fee rate is determined by reviewing the 'qualified costs' calculated based on cost analysis including card companies' funding costs, risk management costs, general administrative costs, VAN fees, and marketing expenses. The revised card merchant fee rates will be applied from next year based on the newly calculated qualified costs and affordability. Since the introduction of the qualified cost system, the annual burden on merchants has decreased by about 2.4 trillion KRW compared to before.

However, due to continuous reductions in merchant fees, card companies are operating at a loss in their core merchant fee business. According to a bill review report by the National Assembly's Political Affairs Committee, the Credit Finance Association estimated that the card industry's operating profit from merchant fees recorded a loss of 131.7 billion KRW over the past two years (2019-2020). This follows a sharp decline from 500 billion KRW in 2013-2015 to 24.5 billion KRW in 2016-2018, resulting in a deficit. Especially after expanding the scope of preferential merchants from those with sales under 500 million KRW to those under 3 billion KRW in 2018, losses have accumulated as sales occur at 96% of merchants receiving preferential fee rates, suggesting the actual deficit is even larger.

Minimal Real Benefit for Self-Employed... Misused as Election Tool

Although the measure aims to alleviate difficulties faced by small self-employed business owners threatened by COVID-19 and other factors, there are criticisms that the real benefit for small self-employed business owners is minimal. This is because merchants with annual sales of 1 billion KRW or less already have a fee rate of 0% when tax benefits are considered.

Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University said, "The card fee rate has already been sufficiently reduced, so it is questionable what effect further reductions will have," adding, "For small self-employed business owners with annual sales of 300 million KRW or less, the fee rate is only 0.5%, and considering VAT refunds and other factors, it is close to a negative fee rate."

There are concerns that the reduction in card fees may actually increase the cost burden on small business owners. Losses from reduced merchant fees are passed not only to card companies but also to downstream industries such as VAN companies, which may have to start charging for services that were previously provided free of charge to small business owners in order to maintain profitability.

Card companies are also expected to expand workforce reductions such as voluntary retirement to cut costs. KB Kookmin Card already implemented voluntary retirement last month, and Lotte Card is conducting voluntary retirement again this year following last year. These are measures to prepare for worsening market conditions next year. Woori Card is currently negotiating with the labor union regarding voluntary retirement.

Card companies have already reduced costs through workforce cuts and investment suspensions due to deteriorating profitability from merchant fee reductions. As a result, the number of card solicitors, which once approached 100,000, has plummeted to 8,000, and 40% of branches have been downsized. From next year, rising benchmark interest rates will increase funding costs, and with financial authorities including card loans in the total debt service ratio (DSR) regulations, the loan income that has offset merchant fee deficits is likely to decrease significantly. This suggests that workforce reductions including voluntary retirement may expand.

An industry insider said, "The payment sector is no longer profitable as the scope of preferential merchants has been greatly expanded, yet fees have been continuously reduced considering the difficulties of self-employed business owners. This additional fee reduction decision only increases the burden on the card industry rather than providing benefits," adding, "Considering rising funding costs, reduced loan income due to household debt regulations, and increased bad debts, the sustainability of profits will become increasingly difficult."

The intensity of the struggle by the Card Company Labor Union Council, which had threatened to consider shutting down payment networks if fees were further reduced, is also expected to increase. Jung Jong-woo, chairman of the Card Company Labor Union Council, said, "Card fees, which should be autonomously decided in a market economy, are being used for political purposes such as elections," and warned, "The threat to consider shutting down payment networks depending on the fee reduction outcome remains valid," signaling strong resistance.

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