[Card Fee Reform Q&A] Institutional Improvement TF to Launch in Q1 Next Year... Exploring Win-Win Solutions

Annual Sales Under 300 Million KRW for Self-Employed Reduced from 0.8% to 0.5%
96% of All Franchise Stores Benefit from Card Fee Reduction

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@

[Asia Economy Reporter Kwangho Lee] The ruling party and the government have decided to lower the card commission rate by 0.3 percentage points from 0.8% to 0.5% for small franchise stores with annual sales of 300 million KRW or less. This measure aims to reduce the burden on small business owners amid the COVID-19 pandemic.

The Financial Services Commission announced on the 23rd that it finalized the card commission reform plan after consultations with the ruling party at the National Assembly Members' Office Building in Yeouido.

For annual sales between 300 million KRW and 500 million KRW, the commission rate will be reduced from 1.3% to 1.1%, and for sales between 500 million KRW and 1 billion KRW, it will be lowered from 1.4% to 1.25%. For sales between 1 billion KRW and 3 billion KRW, the card commission will decrease from 1.6% to 1.5%. This means that 96% of all card franchise stores will be subject to the commission rate reduction.

At the opening remarks on the day, Financial Services Commission Chairman Ko Seung-beom said, "We gathered opinions from stakeholders in various ways to reform the card commission," adding, "The preferential commission rate was adjusted to significantly reduce the commission burden on small-scale franchise stores."

The following is a Q&A regarding the card commission reform plan.

- Why does the reduction in card commission rates appear smaller compared to 2018?

▲ The qualified cost system is designed to reflect only the reasonable costs borne by franchise stores in the commission rate. This commission rate adjustment was made based on qualified costs reasonably calculated through verification by accounting firms according to the Specialized Credit Finance Business Act. In particular, the decrease in funding costs such as the average interest rate on card bonds has significantly diminished compared to the 2018 calculation, and during 2018-2019, the delinquency rate on credit sales receivables slightly increased compared to before, indicating an increase in risk management costs.

- Will the commission rate reduction affect the soundness of card companies?

▲ Currently, card companies' adjusted capital adequacy ratios and delinquency rates are being maintained stably. We will closely supervise to ensure the soundness of card companies is managed stably through provisions for bad debts. In the future, through the operation of a task force (TF) for card industry system improvement, we plan to re-examine whether the current system appropriately reflects the operating costs and profits and losses of the credit sales sector to maintain the soundness of card companies. In particular, to help card companies grow into comprehensive payment service providers, we will rationalize regulations in the data sector, further expand concurrent and auxiliary businesses, and promote healthy growth in the payment sector through various new industry entries and revenue source discoveries by card companies. Accordingly, we will work to increase benefits for franchise stores and consumers.

- What is the composition and schedule of the TF?

▲ The system improvement TF plans to seek cooperation measures for coexistence among stakeholders by strengthening the competitiveness of the card industry. It will be broadly composed of the Financial Services Commission, Financial Supervisory Service, small business and microenterprise groups, the Credit Finance Association and card companies, consumer groups, and other experts (legal and accounting), with a launch planned in the first quarter of next year.

- What is your opinion on the criticism that regulating only card commissions and not fintech simple payment commissions violates the "same function, same regulation" principle and deepens the "tilted playing field" effect?

▲ The credit card commission rate calculation system was introduced through legislation in consideration of the public nature of the card payment network. Simple payments and credit cards differ in commission structure, types of services provided, and competitive environment, making direct comparison difficult. However, since the Financial Supervisory Service is currently reviewing the fee structure and commission rates of simple payments, we will carefully examine the results of this review. Additionally, we will form a system improvement TF centered on the card industry, consumers, and franchise stores to re-examine whether the qualified cost-based commission system appropriately reflects the operating costs and profits and losses of the credit sales sector and consider various system improvement measures to help card companies secure competitiveness in the credit sales sector.

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