Legal and Institutional Reforms Triggered by Timf... Card Companies 'Cry' Banks 'Smile'

Hana Financial Research Institute's Outlook on 'Timon and Wemakeprice Incident and Its Impact on the Financial Industry'
"Card Companies' Profitability Declines... Expansion of Escrow Services in Banking Sector"

As financial authorities and political circles move to revise related laws and systems to prevent a recurrence of the Timep (Timon·Wemakeprice) incident, significant changes are expected in the financial industry going forward. It is analyzed that while the profitability of card companies will deteriorate, opportunities will arise for the banking sector.

According to the "Timon·Wemakeprice Incident and Its Impact on the Financial Industry" report published by Hana Financial Research Institute on the 21st, the cause of the recent Timep incident lies with the parent company of Timep (Qoo10), which misappropriated liquidity by exploiting the complex payment division structure and the time lag between payment and settlement. This process revealed structural vulnerabilities in open market payments. Seokyoung Shin, Senior Researcher at Hana Financial Research Institute, said, "This incident exposed both the vulnerabilities of online payment systems and corporate moral hazard simultaneously," adding, "Strengthening related regulations is inevitable, and long-term structural changes at the industry level are expected."

The report anticipates that online payment industry regulations will be strengthened in the short term. The government is pushing for mandatory introduction of payment escrow, shortening settlement cycles, and enhancing the roles and responsibilities of Payment Gateway (PG) companies. As a result, contraction and restructuring of the PG industry, including about 100 small and medium-sized PG companies, are inevitable.

In the long term, the influence of big tech commerce and payments is expected to expand. The growth of big tech platforms like Naver Shopping is accelerating, and the payment influence of big tech companies, which offer convenient payment options, is also expected to increase. Senior Researcher Shin stated, "Big tech commerce, which has internalized PG functions, demonstrated advantages such as rapid payment cancellations unlike card companies during this incident," and predicted, "The dependence of consumers and sellers on related services will also greatly expand in the future."

The card industry is expected to experience a decline in profitability. As the PG industry reorganizes around large companies, there is a high possibility that card companies will be asked to negotiate fee reductions under the pretext of sharing the damages from this incident. In July 2022, seven specialized card companies requested the PG Association to raise fee rates by 0.05 to 0.1 percentage points. However, due to strong opposition from the PG Association, the increase was limited to 0.02 to 0.04 percentage points. Since the government continues to push for reductions in card merchant fees, future negotiations on fee adjustments with the PG industry are expected to face difficulties.

On the other hand, opportunities are expected for the banking sector, including commercial banks. This is because demand for online payment financial products centered on escrow is expanding, and there is a high possibility that escrow-related derivative financial products will be created. The average daily escrow amount in e-commerce steadily increased from 151.52 billion KRW in 2021 to 160.38 billion KRW last year. Currently, most of the market is occupied by PG companies and open markets. Senior Researcher Shin said, "Currently, e-commerce escrow is operated as part of PG services, but depending on government regulations on PG companies, it may be reorganized around commercial banks," and added, "It is also possible to develop complex financial services linking escrow, payment, and advance settlement loans that can fill the service gaps of PG and open market escrow services."

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