"Reform Needed for Card Fee Eligible Cost Recalculation System"

2024 Hanguk Credit Card Hakhoe Spring Seminar

Professor Seo Ji-yong, Sangmyung University. Photo by Park Yu-jin

There have been calls for reform of the card fee eligible cost reassessment system, which is conducted every three years. It has been suggested that policies such as readjusting the reassessment cycle should be established as the profitability and financial soundness of card companies deteriorate.

On the 30th, Professor Seo Ji-yong of the Department of Business Administration at Sangmyung University (President of the Korea Credit Card Association) made this claim during a presentation titled "Rational Reform Measures for the Eligible Cost Reassessment System" at the Korea Credit Card Association Spring Seminar held at the Bankers Hall in Jung-gu, Seoul.

Professor Seo pointed out, "As private consumption decreases, card usage shrinks, and procurement costs and delinquencies increase, the profitability and financial soundness of card companies are worsening. While expansion of the core credit sales business is necessary, the eligible cost system makes this difficult."

The eligible cost reassessment system has been in effect since 2012. It is a procedure to adjust fees for preferred merchants every three years, based on an analysis of the cost of merchant fees. Since the system's introduction, the Financial Services Commission has lowered merchant fee rates four times. Due to fee adjustments, fees for small merchants with annual sales under 300 million KRW dropped from 4.5% to 0.5%, and fees for merchants with annual sales between 300 million KRW and less than 3 billion KRW decreased from 3.6% to 1.1?1.5%.

According to Professor Seo, merchant fee revenue has decreased by up to 1.4 trillion KRW annually due to the eligible cost reassessment. He stated, "Procurement and risk management costs that have increased since 2021 are still not reflected in the eligible costs. The merchant fee rate should be switched to link with the size of individual members, and the mandatory card payment system should be changed to a 'partial mandatory card payment system' limited to small payments."

Meanwhile, the Financial Services Commission established the "Card Fee Eligible Cost System Improvement Task Force (TF)" in 2022 and planned to propose reform measures. However, no results have been announced to date.