Imminent Card Fee Reform... Desperate Card Company Labor-Management "Deficit in Credit Sales Division"

Card Company Union Declares Fight Against Fee Reduction
Despite Emphasis on Deficit in Credit Sales Sector
Possibility of Further Reductions Inside and Outside the Industry↑

[Asia Economy Reporter Ki Ha-young] As the announcement of the card fee revision plan is scheduled for next month, and the possibility of additional reductions gains momentum, both labor and management of card companies are voicing concerns about deficits in the credit sales sector in unison. The card industry insists that there is no room for further reductions, but inside and outside the industry, the prevailing sentiment is that card companies, which have posted strong performances despite COVID-19, should further lower fees to support small business owners.

On the 18th, the Card Company Labor Union Council held a 'Card Workers' Struggle Declaration Ceremony' opposing additional reductions in card fees. The council stated, "Due to the qualified cost reassessment 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 tightened internal cost controls," adding, "As a result, 40% of branches have been downsized, and the number of card solicitors, which once approached 100,000, has plummeted to 8,500."

They further argued, "The credit sales payment sector of card companies is already operating at a deficit, and the more sales generated from the 96% of merchants receiving preferential fee rates, the larger the deficit grows like a snowball," pointing out, "In contrast, big tech companies have the autonomy to set fees that are 1.6 to 2.8 times higher than card fees."

Card fee rates have been reduced 13 times since 2007. Since the amendment of the Specialized Credit Finance Business Act in 2012, fees are reassessed every three years, with rates determined based on qualified costs calculated from an analysis of card companies' funding costs, risk management costs, general administrative expenses, VAN fees, marketing costs, and other factors. Fees have been lowered at each reassessment. Notably, in 2018, the scope of preferential merchants was expanded from those with sales under 500 million KRW to those under 3 billion KRW, increasing the proportion of preferential merchants from 84% to 96% of all merchants.

Financial authorities appear to be leaning toward the possibility of further reductions. On the 14th, the Financial Services Commission summoned card company CEOs to explain the progress of qualified cost calculations and gather opinions from the card industry. Although specific reduction rates were not mentioned at the meeting, it was reported that the CEOs emphasized the deficit in the credit sales sector.

Inside and outside the industry, it is widely expected that the fee revision plan to be announced next month will likely include additional reductions, as card companies have shown strong performance despite COVID-19, and with the presidential election next year, political circles are likely to push for fee cuts. In fact, the current amendment to the Specialized Credit Finance Business Act submitted to the National Assembly focuses on reducing fees to alleviate difficulties faced by 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 likelihood of additional fee reductions. NICE Credit Rating recently estimated a downward adjustment of merchant fee rates by about 10 to 20 basis points and predicted that if fees are cut by more than 15 basis points, a maximum deficit of 1.3 trillion KRW could occur.