"Expansion of Electronic Financial Service Fee Disclosure to Ease Fee Burden on Small Merchants"

Expansion of Electronic Financial Service Payment Fee Disclosure
Strengthening the Regulatory Framework for PG Services to Improve Multi-Layered PG Payment Structures

The Financial Services Commission announced on September 30 that it plans to expand the disclosure of electronic financial service payment fees in order to encourage fee reductions through market competition. Additionally, the regulatory framework for payment gateway (PG) service providers will be strengthened to improve the multi-layered payment structure.

Expansion of Electronic Financial Service Payment Fee Disclosure to Ease Fee Burden for Small Merchants

The Financial Services Commission explained that, as the electronic financial payment market has grown rapidly, it has worked to ease the fee burden on small merchants by introducing the simplified payment fee disclosure system in March 2023 and encouraging fee competition in the market. However, as the online payment market continues to grow due to the activation of simplified payments and as electronic financial payment methods such as unmanned ordering devices spread to offline channels, there have been ongoing calls to further ease the fee burden on small merchants.

In response, the Financial Services Commission has decided to revamp the current fee disclosure system to greatly enhance the transparency and comparability of electronic financial payment fee information.

The current disclosure system only applies to 11 companies whose average monthly simplified payment transaction volume exceeds 100 billion won, making it difficult for small merchant affiliates to adequately compare and choose from a variety of electronic financial service providers' fees.

To address this, the plan is to add companies with a certain scale of payment volume (general payments + simplified payments) to the disclosure list, in addition to those currently subject to disclosure. Next year, companies with an average monthly payment volume of 500 billion won or more will be added to the disclosure list. In 2027, the threshold will be lowered to 200 billion won in average monthly payment volume, and by 2028, all prepaid service providers and PG service providers will be included, with the scope of disclosure expanded in stages.

Currently, only the total fee for each card and prepaid payment method is disclosed. However, the total fee disclosed by PG service providers includes not only the fee they receive, but also all fees received by card companies, payment originators, and upper-tier PG service providers, making it difficult to compare the actual fees received by each PG service provider. Going forward, the fees received by card companies and upper-tier PG service providers (external fees) and those received by the prepaid service provider or PG service provider itself (internal fees) will be disclosed separately.

In addition, since each electronic financial service provider has a different business and fee structure, the plan is to categorize providers by business structure and concurrent operations so that it is easier to compare fees among companies with similar business models.

To ensure that small merchant affiliates can trust the disclosed fee information, verification of the disclosure materials will also be strengthened. Currently, only the initial disclosure materials are verified by accounting firms, and subsequent disclosures are self-verified by the companies according to the same standards. This creates the possibility of inconsistencies in verification standards among accounting firms, and the initial verification may not reflect changes in a company's business structure. The Financial Services Commission explained that it will establish consistent disclosure principles and improve the system so that appropriateness is periodically verified (e.g., every two years) by accounting firms.

Strengthening the Regulatory Framework for PG Services to Improve Multi-Layered PG Payment Structures

To address unreasonable electronic financial payment structures, behavioral regulations for PG service providers will also be strengthened. As the online payment market has rapidly expanded, it has become difficult for PG service providers to sign direct affiliate contracts with the numerous online sellers, leading to the proliferation of multi-tier (n-tier) PG structures, in which lower-tier PG service providers are contracted to recruit and manage affiliates. This n-tier PG structure not only results in unnecessary overlapping fee burdens, but also raises issues such as illegal transaction facilitation. However, the current Electronic Financial Transactions Act only requires prepaid service providers and others to verify the registration status and actual business operations of lower-tier PG service providers when entering into contracts, which limits the effectiveness of regulation.

To address this, when prepaid service providers or upper-tier PG service providers enter into or renew contracts with PG service providers, they will be required to assess financial soundness and the risk of illegal activities. If a lower-tier PG service provider is found to pose a high level of risk based on the assessment, it will be mandatory to take substantive actions such as not entering into or renewing contracts, early termination, or issuing corrective orders.

Furthermore, while the current Electronic Financial Transactions Act requires electronic financial service providers to notify affiliates of the "affiliate fee," the scope and timing of such notifications are unclear. Going forward, these requirements will be clarified to ensure proper notification.

The financial authorities stated that, reflecting the revised payment fee disclosure system, the "Guidelines for Disclosure of Payment Fees by Electronic Financial Service Providers" will be swiftly amended, and ad hoc disclosures will be implemented in November to quickly realize the effects of the system reform. Behavioral regulations for PG service providers will be introduced first through administrative guidance in November, and the "Regulations on Supervision of Electronic Financial Services" will be revised by the first half of next year to reflect these changes.

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