[Viewpoint] Credit Card Fee Policy of the New Administration

Seo Ji-yong, Professor, Department of Business Administration, Sangmyung University

The new government will be inaugurated this May. Significant changes are expected in the financial policies of the new administration following the recent presidential election and regime change. In particular, improvements are anticipated regarding the financial authorities' price regulations, which have been applied especially harshly to the credit card industry compared to other financial sectors. The Specialized Credit Finance Business Act stipulates that preferential fee rates are applied to small and medium-sized merchants based on sales volume when determining the commission rates between card companies and merchants, and that these rates are decided by the Financial Services Commission. Compared to banking, where financial institutions set interest rates and service fees independently, price regulation on the card industry is unusual.

Moreover, since 2012, the preferential fee rates have been continuously lowered regardless of market conditions through the re-estimation of eligible costs, a process involving corporate cost disclosure. In fact, during the 2018 re-estimation of eligible costs, the scope of merchants eligible for preferential fee rates expanded to cover 96% of all merchants. Thus, the 4% of merchants not receiving preferential rates have become the exception.

Above all, the government's price regulation on the credit card industry has caused disputes among market participants. Medium and large merchants, such as the Mart Association, classified as general merchants and subject to voluntary negotiation on commission rates, have recently opposed card companies' fee increases. Despite market interest rate hikes due to the monetary authorities' tightening stance and increased risk management costs amid the prolonged COVID-19 situation, these associations have rejected the fee increases. This opposition stems not only from the fee increase itself but also because it contradicts the downward trend of preferential fee rates. Furthermore, ultra-large merchants like department stores enjoy low commission rates comparable to preferential rates based on their market dominance, leading medium and large merchants to feel discriminated against in fee application.

Meanwhile, small and medium-sized merchants benefiting from preferential fee rates, which have dropped to the 0% range, express dissatisfaction with the Specialized Credit Finance Business Act's mandatory card acceptance. They argue that the mandatory acceptance system undermines business autonomy. The merchant fees incurred even in small transactions impose a significant cost burden on their operations. Consequently, the government's price regulation measures intended to support small and medium-sized merchants are negatively affecting the price-setting process through amicable negotiations among market participants.

Therefore, it is time to abolish price regulation measures on the credit card industry. In advanced credit card markets such as the United States and Europe, government price regulation is rarely found. The abolition of the eligible cost re-estimation system and the Financial Services Commission's determination of preferential fee rates are outdated relics that should be eliminated. Instead, it is necessary to revise the mandatory card acceptance system to allow small and medium-sized merchants to refuse credit card payments for small transactions.

Monopolistic behaviors that adjust commission rates by exploiting market dominance in the card market can be adequately addressed through the introduction of class action lawsuits. Of course, revising the mandatory acceptance system may impose some limitations on card consumer convenience. However, considering recent payment trends where various simple payment methods are used instead of cash, significant inconvenience to consumers is unlikely. On the contrary, if the voices demanding reductions in preferential fee rates ease due to enhanced business capabilities of small and medium-sized merchants, card companies are expected to increase additional services for card users beyond the current level.

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