"Card Fee Reform Needed"... Australia Abolishes Eligible Costs, US Antitrust Lawsuit

Australia Abolishes Eligible Cost After 13 Years of Implementation
US Utilizes Indirect Regulation Such as Antitrust Lawsuits
"Korea's Reassessment Cycle Is Uniform... Needs Flexibility"

As financial authorities prepare to set card merchant fee rates by the end of the year, there are calls to make card fee policies more flexible like those in major overseas countries such as Australia and the United States. Australia, which served as the model for South Korea's card fee system, abolished the qualified cost system eight years ago, and the U.S. uses indirect regulations such as fee disclosure and antitrust lawsuits, experts advise.

At a seminar titled “Current Status and Policy Implications of U.S. and Australian Card Fee Regulation Policies” held on the afternoon of the 14th at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul, Jang Myung-hyun, senior researcher at the Credit Finance Research Institute, said, “Even if it is practically difficult to abolish the qualified cost calculation process itself like Australia, it is worth considering making the recalculation cycle more flexible.” Qualified cost refers to the operating cost calculated by considering various expenses incurred by card companies in conducting their business.

Among major overseas countries, Australia was the first to introduce card fee regulations and is known as the origin of South Korea’s qualified cost system. In 2003, the Reserve Bank of Australia (RBA) regulated that the average fees for credit and debit cards could not exceed the upper limit calculated based on qualified costs.

However, Australia only conducted qualified cost recalculations twice, in 2003 and 2006. Since then, no recalculations have been made, and after the system was abolished in 2016, the card fee cap set in 2006 has been maintained to the present. Senior researcher Jang analyzed, “This is because the goal of reducing card payment costs was achieved, and the efficiency of the system declined compared to the considerable social costs incurred during the qualified cost calculation process.”

In the United States, where card fee policies are set under free market principles with prices determined by supply and demand, direct price regulation is rare. Kang Kyung-hoon, professor of business administration at Dongguk University, explained, “The U.S. government has introduced various regulations related to card fees but does not directly control or set market prices. It is characterized by operating mainly through indirect regulations such as enhancing transparency, protecting consumers, and promoting competition.”

The U.S. Federal Reserve (Fed) has improved business practices and strengthened consumer protection since 2004 through card fee information disclosure. If market competition is not smooth, it seeks resolution through antitrust lawsuits. In fact, last month, the U.S. Department of Justice filed a lawsuit against global payment technology company Visa, accusing it of illegally suppressing competition to maintain a monopoly in the card market. This is the Biden administration’s first antitrust lawsuit in the financial sector.

The recently proposed “Credit Card Competition Act” by the U.S. government also mentions indirect measures to reduce card fees. Senator Dick Durbin, who introduced the bill, explained the background by saying, “Merchant credit card fees are high, and these fees are passed on to consumer prices,” while also evaluating that “existing regulations related to debit cards, such as policies to resolve network monopolies by Visa and Mastercard, have been effective.”

Jang Wankyu, Chairman of the Korea Federation of Credit Finance, is delivering the opening remarks at the seminar on "Current Status and Policy Implications of Card Fee Regulation Policies in the US and Australia," held on the afternoon of the 14th at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul.
[Photo by Jeon Youngju ange@]

Accordingly, opinions have emerged that South Korea’s card fee system, including qualified costs, should be improved. The Financial Services Commission recalculates qualified costs every three years and adjusts preferential fee rates for small and medium-sized merchants. Since the system was introduced in 2012, preferential fee rates, which were between 1.5% and 2.12%, have been lowered to between 0.5% and 1.5%.

Seo Ji-yong, professor of business administration at Sangmyung University, criticized, “Because of the qualified cost system, card companies have a distorted profit structure where profitability in the credit sales (card payment) sector deteriorates and is compensated through profits in the loan sector,” adding, “There is a structural problem where if card companies try to improve management efficiency by reducing costs to generate profits, profitability actually declines.” He further stated, “Instead of a uniform three-year recalculation cycle, it is necessary to conduct recalculations only when factors causing fee rate fluctuations arise due to rapid changes in the financial market.”

He also pointed out, “A factor that increases fee burdens on small merchants is the mandatory card acceptance system,” and suggested, “It is necessary to apply a partial mandatory card acceptance system only for small payments so that merchants can choose payment methods with lower fees.” The mandatory card acceptance system refers to the current system under the Specialized Credit Finance Business Act that requires merchants to accept consumers’ credit cards.