Card Industry Emphasizes Deficit in Credit Sales Sector
Industry Weighs Possibility of Further Reductions
Card Company Unions Announce Protest Rally Against Reductions
[Asia Economy Reporter Ki Ha-young] Ahead of the announcement of the card fee restructuring plan next month, the possibility of an additional reduction is increasing. Although the financial authorities convened the card industry to gather opinions, the atmosphere is leaning toward an additional reduction in the fee rate.
On the 17th, according to financial authorities and the card industry, the Financial Services Commission called the heads of card companies on the 14th to explain the progress of the eligible cost calculation and to collect opinions from the card industry. At this meeting, the heads of card companies reportedly emphasized that the credit sales sector is running at a deficit.
The merchant fee rate has been revised every three years according to the Specialized Credit Finance Business Act amended in 2012. The fee rate is determined by reviewing the eligible cost calculated based on cost analysis such as card companies’ funding costs, risk management costs, general administrative costs, VAN fees, and marketing expenses. Over the past 12 years, merchant fees have been reduced 13 times.
According to the National Assembly’s Legislation and Judiciary Committee bill review report, the Korea Credit Finance Association estimated that the card industry’s operating profit in the merchant fee sector recorded a loss of 131.7 billion KRW over the past two years (2019?2020). It explained that the deficit state followed a sharp decline from 500 billion KRW in 2013?2015 to 24.5 billion KRW in 2016?2018. The card industry believes the actual deficit is larger than this estimate. Since 96% of merchants receiving preferential fee rates generate sales, the deficit is accumulating.
However, it is known that no specific reduction rate was mentioned at this meeting. The Financial Services Commission plans to announce the eligible cost calculation results and the fee restructuring plan at the end of next month after consultations with the ruling party and government.
Inside and outside the industry, it is expected that the fee restructuring plan to be announced next month will likely include additional reductions as in previous years. Despite COVID-19, card companies have shown strong performance, and with the presidential election next year approaching, the political sphere is likely to push for fee reductions. In fact, the proposed amendments to the Specialized Credit Finance Business Act currently submitted to the National Assembly focus on reducing fees to alleviate difficulties for traditional markets and small merchants. It also includes mandatory application of preferential fee rates for special merchants such as social enterprises, gas stations, and public transportation operators.
Credit rating agencies also foresee a high possibility of additional fee reductions. NICE Credit Rating recently estimated the downward adjustment of merchant fee rates to be about 10?20 basis points and predicted that if fees are reduced by more than 15 basis points, a maximum deficit of 1.3 trillion KRW could occur.
In response to the financial authorities’ move to further reduce card fees, the Card Company Labor Union Council has expressed opposition. The council plans to hold a “Card Workers’ Struggle Declaration Ceremony” in front of the Financial Services Commission on the 18th. The council emphasized, “Due to the eligible cost recalculation system for card fees over the past 12 years, card companies have reduced personnel, halted investments, cut consumer benefits such as interest-free installments, and controlled internal costs. As a result, 40% of branches have been downsized, and the number of card solicitors, which once approached 100,000, has sharply decreased to 8,500.”
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