[Pay War] ② Will Naver Pay Be Held Back? "Concerns Over Apple Pay Fees"

Big Tech Quickly Dominates Market, Apple Pay Faces Tension
"Closed and Unfair" Backlash... Concerns Over Fee Burden Too

[Asia Economy Reporter Minwoo Lee] With the arrival of Apple Pay, domestic simple payment companies are on high alert. In particular, the 'big tech' companies, which had previously faced criticism for unfair competition in the fee battles with card companies, now seem to be raising their voices about the 'tilted playing field' targeting Apple Pay.

According to the industry on the 9th, domestic big tech companies such as Naver Financial (operator of Naver Pay) and Kakao Pay are tense due to the emergence of Apple Pay. Although their stronghold built online remains solid, they recognize that Apple Pay inevitably becomes a formidable competitor in the offline payment sector, which has been recently expanding.

Big Tech's Unstoppable Growth... Occupying Half the Market

Naver Pay and Kakao Pay have established themselves as leaders in the domestic simple payment industry based on convenience, versatility, and platform capabilities. According to the Bank of Korea, as of the first half of last year, services centered on electronic financial operators like Naver Pay and Kakao Pay accounted for 50.3% of the average daily simple payment amount. Mobile phone manufacturers represented by Samsung Pay accounted for 23.6%, and financial institutions such as card companies accounted for only 26.1%. Considering that the financial institutions' share was 57% in 2016, the balance has reversed in six years.

In fact, Naver and Kakao have emerged as 'giants' in the payment industry. Naver Pay's payment amount increased 1.91 times from 25.6 trillion KRW in 2020 to 48.8 trillion KRW last year. Kakao Pay's transaction amount (including remittances) also grew 1.76 times from 67 trillion KRW to 118 trillion KRW during the same period. While initially growing mainly online, they have recently been rapidly expanding into the offline sector as well.

Card companies have complained about this expansion, calling it a 'tilted playing field.' While card companies have steadily lowered merchant fees under financial regulatory oversight, big tech companies have been free from such regulations. Jeong Wankyu, chairman of the Korea Credit Finance Association, emphasized resolving card fee issues at his first press conference after taking office in October last year. In fact, the merchant fee for small merchants, which reached 4.5% in the mid-2000s, was reduced to 0.5% (for sales under 300 million KRW) by the end of last year. Meanwhile, the fee rates for Naver Pay, Kakao Pay, and others still hover around 1-2%.

From Criticism of the 'Tilted Playing Field' to Claims of Unfairness

The situation for big tech has changed with the arrival of Apple Pay. They have encountered a powerful competitor while promoting offline expansion centered on QR code payment methods. Competition is expected to intensify in the somewhat stagnant offline simple payment market compared to online. In particular, they criticize Apple Pay's closed Near Field Communication (NFC) policy.

A representative from a big tech company said, "Google and Samsung allow banks and card company applications to use NFC functions, but Apple restricts NFC access to Apple Pay only, citing security reasons, and also demands fees per payment amount." He pointed out, "This issue has already been flagged by the European Union (EU) antitrust regulators, but in Korea, Apple has circumvented domestic regulations by entering through Hyundai Card without registering as an electronic financial operator, raising concerns about even more unfair competition due to lack of proper domestic oversight."

In response, financial authorities have drawn a line. Considering related laws such as the Specialized Credit Finance Business Act and the Electronic Financial Transactions Act, as well as previous legal interpretations, Apple Pay's entry is permitted, so the method of entry is not problematic. A Financial Services Commission official said, "We have already completed the authoritative interpretation regarding Apple Pay's domestic launch and have stipulated that related fees and costs should not be passed on to consumers or merchants." He added, "Since legality has been confirmed, the authorities cannot and should not force individual companies' entry methods or business strategies."

Nevertheless, the fee burden demanded by Apple Pay is inevitable and could ultimately be detrimental to card companies. Apple has long demanded EMV certification fees, an international standard, and fees per payment amount. According to the Korea Credit Finance Association's 'Overseas Credit Finance Trends,' Apple earned about 1 billion USD (approximately 1.26 trillion KRW) in revenue from fees collected from Apple Pay partner card issuers in 2019. In Korea, it is highly likely that various fees will be imposed on card companies and value-added network (VAN) operators rather than merchants. There are concerns that card companies' profitability may decline or, in severe cases, they may operate at a loss. A card industry official said, "If card companies reduce various benefits due to fee burdens, customers who do not use Apple Pay will also suffer." He pointed out, "Issues of fairness may also arise in the future."