Authorities Immediately Lower Fees Under Pressure of 'Same Function, Same Regulation' Principle
Both Card Companies and Big Tech Reduce Fees, Easing Burden on Small and Medium Businesses
Differences in Fee Perspectives Remain... Industry Conflicts Expected to Continue
On the afternoon of December 17 last year, when the government announced that it would provide quarantine support funds worth 1 million won to 3.2 million small business owners whose sales declined due to special COVID-19 quarantine measures, a self-employed person was having a meal at a restaurant in Seoul. [Image source=Yonhap News]
[Asia Economy Reporter Minwoo Lee] Naver and Kakao have reduced the commission rates for simple payment services for small and medium-sized businesses starting from the previous day (January 31). This move comes amid ongoing conflicts with existing card companies over commission rates, and is seen as influenced by financial authorities applying pressure under the principle of "same function, same regulation." While small and medium-sized businesses will bear somewhat less burden as card companies also lowered their commission rates, the conflict between card companies and big tech is expected to continue.
According to the industry on the 1st, the Financial Services Commission announced that, following the revision of the Credit Specialized Financial Business Supervision Regulations, the commission rates for 2.878 million credit card merchants with annual sales of 3 billion KRW or less and 1.329 million sub-merchants of payment gateway (PG) companies will change from 0.8?1.6% to 0.5?1.5%. Additionally, 165,000 individual taxi operators are also subject to commission rate adjustments.
Naver Financial and Kakao Pay are also lowering payment commissions for small and medium-sized businesses. Naver Financial will reduce Naver Pay commission rates by 0.2 percentage points (P) for small businesses and by 0.05?0.15%P depending on sales scale for medium-sized businesses. Accordingly, the order management commission for small businesses will decrease from 2.0% to 1.8%, and the payment-type commission for those using only the payment gateway service will be reduced from 1.1% to 0.9%.
Kakao Pay will lower commissions by 0.3%P for small businesses and by 0.1?0.2%P depending on scale for medium-sized businesses. The preferential commission rates are applied based on data from the National Tax Service and the Credit Finance Association, and merchants can check them on the Kakao Pay Partner Admin platform.
Big tech companies explained this as an effort to coexist with small business owners, but the industry views the financial authorities' pressure as the main background. It is understood that the authorities responded to the fairness issues continuously raised by the card industry, sending a "warning."
Card companies have been continuously lowering card commissions for small and medium-sized businesses through a "qualified cost reassessment system" review every three years. However, big tech companies were not included in this system, leading card companies to consistently point out the unfairness. The financial authorities responded. On the 26th of last month, Jeong Eun-bo, Governor of the Financial Supervisory Service, stated at the 'Financial Platform Meeting' held at the Bankers Association in Jung-gu, Seoul, "Rather than expecting exceptions from minimal financial regulations and supervision under the pretext of innovation, financial platforms should also strive to maintain a sound market order." On the same day, Naver Financial and Kakao Pay immediately announced their commission reduction policies.
Attention is focused on whether the conflicts between card companies and big tech will be resolved as both sides reduce commissions. Nevertheless, some analyses suggest that parallel lines may continue for the time being. This is because card companies and big tech have different standards for commissions. Card companies argue that card commissions and simple payment commissions should be the same and thus subject to the same regulations. On the other hand, Naver and Kakao believe that the commissions they receive for payments and order management should be compared with those of PG companies or other simple payment providers. Unlike existing card commissions, various simple payment business commissions include fees paid to card companies and product management risk costs. Therefore, they argue that an accurate comparison requires directly comparing the commissions of shopping malls operated by card companies.
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