[Initial Perspective] Timeff Incident, What Is Needed Is 'Targeted Regulation'

Kim Cheol-hyun, Deputy Director of the Bio Startup and Venture Department

"There has never been a delay in settlements before, but now sellers are withdrawing. Distrust is spreading throughout the platform." At the emergency meeting titled ‘The Tmon-Wemakeprice (TiMeP) Incident and Solutions as Seen by E-commerce Startups’ held by Startup Alliance on the 14th, Kim Dong-hwan, CEO of Backpacker, who attended after a sudden call, looked deeply troubled. The fallout from the TiMeP incident is spilling over onto unrelated e-commerce startups. Backpacker operates the handmade market ‘Idus’, the crowdfunding platform ‘Tumblbug’, and the design commerce ‘10x10’. Although they have nothing to do with the settlement delays at TiMeP, rumors such as ‘Idus is unstable’ and ‘10x10 might also fail to settle payments’ spread, causing difficulties, Kim revealed.

His words starkly reveal the crisis faced by the platform industry, especially startups, due to the TiMeP incident. The TiMeP incident stemmed from the management failure of the Qoo10 Group, particularly the moral hazard of the executive Go Young-bae. Nevertheless, sellers and consumers who experienced becoming victims overnight now question whether they can trust this platform. Questions like ‘If I join here, will I receive proper settlements, or will I lose money?’ and ‘Is it safe to purchase here?’ lead to the conclusion that at least large corporations might be trustworthy. In fact, since TiMeP’s payment function was suspended on the 24th of last month, the e-commerce platform with the largest increase in daily active users (DAU) was 11st, a large corporation affiliate.

Concerns naturally arise that only giant capital will survive, strengthening monopolies, and innovative startups will find it difficult to survive. However, the real problem begins now. This is about the regulations that the government and the National Assembly are preparing in unison after the TiMeP incident. Platform regulation bills are being consecutively proposed in the National Assembly. Financial authorities have started institutional improvements focusing on the full introduction of escrow (payment deposit) and shortening settlement cycles.

Everyone agrees on the need for institutional measures to prevent recurrence of such incidents. What the industry worries about are the side effects of blanket regulation. Even looking at the escrow method, where a third party such as a bank holds the payment and settles upon payment confirmation, it is pointed out that it is impractical to introduce it to all platforms. Since each platform sells different goods and has different consumers, escrow also blocks ways to provide benefits to consumers through deposits. Sales methods and settlement cycles vary by business type, so mandating a shortened settlement cycle across the board is also problematic. Idus, which handles handmade products, operates on a made-to-order basis, so it can take over a month from order to shipment. It is unreasonable to apply a shortened settlement cycle uniformly. The point is that platforms with different characteristics cannot be regulated with a standardized settlement cycle.

If the concentration of large e-commerce platforms intensifies after the TiMeP incident and regulations are added, it will be difficult for platform startups to survive. Unicorn companies with a corporate value of over 1 trillion won born in Korea have so far been concentrated in the platform sector. Regulation to prevent recurrence is necessary. However, before that, a detailed review of which platforms are doing what kind of business is needed to create ‘pinpoint regulations’. The TiMeP incident should not prevent more unicorns from emerging in the platform sector.