[Card Fee Reform] 14th Reduction... Fierce Criticism as 'Election Populism' (Comprehensive)

Ruling Party and Government Announce 'Card Fee Reform Plan'
Merely Appeasing Self-Employed... Concerns Over Minimal Benefits and Increased Burden

Financial Services Commission Chairman Ko Seung-beom (fourth from the left) is delivering opening remarks at the ruling party-government consultation on card fee reform held at the National Assembly on the 23rd. Photo by Yoon Dong-ju doso7@

Ruling Party and Government Lower Credit Card Fees from 0.8% to 0.5% for Merchants with Annual Sales under 300 Million KRW

[Asia Economy Reporter Lee Kwang-ho] The ruling party and government have decided to reduce credit card fees for merchants with annual sales under 300 million KRW from the existing 0.8% to 0.5%, a 0.3 percentage point cut. This move aims to ease the burden on self-employed individuals and small business owners amid the prolonged COVID-19 situation. The card industry has pushed back, claiming that "card fees are being politically exploited." Critics argue that as the political sphere views support for small business owners affected by COVID-19 as a key battleground ahead of the presidential election, this is a case of "passing the responsibility."

On the 23rd, the Democratic Party and the Financial Services Commission announced the 'Card Fee Reform Plan' at the National Assembly Members' Office Building in Yeouido, outlining these changes. The reform plan aims to reduce the card fee burden on small merchants and promote institutional improvements for a sustainable fee system in the future.

First, based on the calculation of eligible costs, the fee reduction amount resulting from this reform is estimated at 470 billion KRW. The Financial Services Commission cited factors contributing to the fee rate decline, including ▲reduced funding costs due to lower interest rates ▲decreased labor costs from expanded non-face-to-face operations ▲reduced VAN (Value Added Network) fees due to increased online payment ratios.

Based on the eligible cost calculation results, the Financial Services Commission adjusted preferential fee rates so that small merchants can benefit more from the fee burden reduction. For small merchants with annual sales under 300 million KRW, the fee rate is lowered from 0.8% to 0.5%, a 0.3 percentage point cut. For small and medium merchants, the fee rates are also reduced by sales brackets: 300 million to 500 million KRW from 1.3% to 1.1%, 500 million to 1 billion KRW from 1.4% to 1.25%, and 1 billion to 3 billion KRW from 1.6% to 1.5%.

For check cards, small merchants with annual sales under 300 million KRW will see fees cut from 0.5% to 0.25%, a 0.25 percentage point reduction. Similarly, small and medium merchants’ fee rates are lowered by sales brackets: 300 million to 500 million KRW from 1% to 0.85%, 500 million to 1 billion KRW from 1.1% to 1.0%, and 1 billion to 3 billion KRW from 1.3% to 1.25%.

Fee Reduction Amount of 470 Billion KRW... Task Force Launched for Institutional Improvement

Approximately 60% of the adjusted amount (470 billion KRW) will be allocated to small merchants with annual sales under 300 million KRW, about 30% to small and medium merchants with sales between 300 million and 1 billion KRW, and about 10% to those with sales between 1 billion and 3 billion KRW.

Through this fee reform, it is expected that the fee burden for approximately 2.2 million small merchants (75% of all merchants) with annual sales under 300 million KRW will be reduced by more than 40%. The Financial Services Commission explained that small merchants and self-employed individuals will benefit evenly from fee burden reductions across all sales brackets.

For example, a small self-employed merchant with annual sales under 300 million KRW, having 150 million KRW in credit card sales and 50 million KRW in check card sales (total card sales of 200 million KRW), will be able to reduce annual fees by about 575,000 KRW due to this fee reform.

Additionally, the Financial Services Commission plans to form a task force (TF) for institutional improvement, centered on consumers, merchants, and the card industry, to explore cooperative measures for mutual growth among stakeholders. The commission will re-examine whether the eligible cost-based fee system appropriately reflects the operating costs and profits of the credit sales sector and plans to prevent excessive reductions in consumer benefits to maintain competitiveness in credit sales. They will also consider adjustments to the recalculation cycle and other system enhancements.

Various incentives will be provided to the industry, which bears the burden of fee reductions. The scope of card companies’ concurrent and ancillary businesses will be reasonably expanded, and the institutional foundation for better utilization and distribution of card company data will be strengthened. Furthermore, support for infrastructure competitiveness, fintech investments, and digital innovation will be actively promoted.

Card Industry Reluctant: "Politically Exploited as an Election Tool"

However, the card industry expressed reluctance to further fee reductions, citing operational difficulties. Jung Jong-woo, chairman of the Card Company Labor Union Council, stated, "For small self-employed merchants, card fees are already effectively refunded, so they are actually receiving money back," and criticized, "The difficulties faced by small self-employed merchants are not due to card fees, but card fees are being politically exploited as an election tool under the pretext of protecting them."

Professor Seo Ji-yong of Sangmyung University’s Business Administration Department pointed out, "Card fee rates have already been sufficiently lowered, so it is questionable what effect further reductions would have," adding, "For small self-employed merchants with annual sales under 300 million KRW, the fee rate is only 0.5%, and considering VAT refunds, the effective fee rate is close to negative."

Some express concern that lowering card fees could increase the cost burden on small business owners. The deficit caused by reduced merchant fees is passed not only to card companies but also to downstream industries such as VAN companies, which may have to start charging fees for services they previously provided free of charge to small business owners to maintain profitability.

There are also forecasts that card companies will expand workforce reductions, including voluntary retirement programs, to cut costs. Last month, KB Kookmin Card implemented voluntary retirement, 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 its labor union regarding voluntary retirement.

Meanwhile, this card fee reform plan will be implemented after the revision of the Credit Finance Business Supervision Regulations is announced for public comment and approved by the Financial Services Commission by the end of next month.

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